SEBI allows promoters to increase stake by up to 10%

Stock market regulator, Securities and Exchange Board of India (SEBI) has amended the takeover norms to allow promoters to increase their stake by up to 10 per cent through a preferential allotment.

The move will give a boost to promoters wanting to increase their stake and enhance investor confidence as the promoter buying more shares is a good signal to shareholders.

The amendment in the regulations allows a promoter owning 25 per cent or more voting rights in a company to increase shareholding by up to 10 per cent in a year versus the earlier limit of 5 per cent. This is valid only for the current financial year and is allowed for a preferential issue of equity shares.

“SEBI relaxation on the creeping acquisition is a double whammy for promoters. They will not only be able to increase their stake but this will also build investor confidence.” said Rajesh Thakkar, Partner & Leader/ Transaction Tax, Tax & Regulatory Services, BDO India.

As per a notification, the amendments have been made to the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

These regulations may be called the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations, 2020.

They shall come into force on the date of their publication in the official gazette. In the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, in regulation 3, in sub-regulation (2), the following new proviso shall be inserted before the existing provisions, namely – “Provided that the acquisition beyond five per cent but up to ten per cent of the voting rights in the target company shall be permitted for the financial year 2020-21 only in respect of acquisition by a promoter pursuant to preferential issue of equity shares by the target company.”

In regulation 6, in sub-regulation (1), the following shall be inserted after the first proviso, namely,- “The relaxation from the first proviso is granted till March 31, 2021.”

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