IS SEBI RELAXED ITS RULES TO FAVOUR RELIANCE INDUSTRIES LTD ?
How a Change in a
Rule by SEBI Helped Reliance to Raise Rs 53,000 crore and to become a debt free
company.
Rule by SEBI Helped Reliance to Raise Rs 53,000 crore and to become a debt free
company.
The
recently-concluded rights issue of shares by Reliance Industries Limited would
not have been possible were it not for the relaxation of a crucial rule by the SEBI
a few days before the Reliance Industries Ltd (RIL) declared that it would
conduct the country’s biggest-ever rights issue to raise over Rs 53,000 crore.
recently-concluded rights issue of shares by Reliance Industries Limited would
not have been possible were it not for the relaxation of a crucial rule by the SEBI
a few days before the Reliance Industries Ltd (RIL) declared that it would
conduct the country’s biggest-ever rights issue to raise over Rs 53,000 crore.
RIL Share jumped to a
record high of more than Rs 1,804 on Monday June 22., 2020. RIL thus became the
first Indian conglomerate with a market capitalisation in excess of $150
billion or nearly Rs 11,44,00,00,000,000.
record high of more than Rs 1,804 on Monday June 22., 2020. RIL thus became the
first Indian conglomerate with a market capitalisation in excess of $150
billion or nearly Rs 11,44,00,00,000,000.
RIL RAISED RS 53,125 CRORE
Mukesh Ambani’s net
worth zoomed to $64.5 billion, making him the only Asian among the world 10
richest individuals, according to Bloomberg.
worth zoomed to $64.5 billion, making him the only Asian among the world 10
richest individuals, according to Bloomberg.
Between May 20 and
June 3, RIL conducted a rights issue of its shares. The rights issue by RIL raised Rs 53,125
crore––the biggest amount ever raised through such an exercise by any
Indian company.
June 3, RIL conducted a rights issue of its shares. The rights issue by RIL raised Rs 53,125
crore––the biggest amount ever raised through such an exercise by any
Indian company.
RELAXATIONS OF RULES BY SEBI
The entire
fund-raising effort would have not been possible had it not been for a crucial
change in the fineprint of a set of regulations issued by SEBI.
fund-raising effort would have not been possible had it not been for a crucial
change in the fineprint of a set of regulations issued by SEBI.
In
a notification issued on April 21, SEBI relaxed certain rules that
prevent a company from seeking to conduct a rights issue of shares in a “fast
track” mode––as RIL did––if there are ongoing cases against the company in
which SEBI has alleged that there have been violations of laws relating to
trading of securities by RIL.
a notification issued on April 21, SEBI relaxed certain rules that
prevent a company from seeking to conduct a rights issue of shares in a “fast
track” mode––as RIL did––if there are ongoing cases against the company in
which SEBI has alleged that there have been violations of laws relating to
trading of securities by RIL.
The relaxations suited RIL perfectly, as the company is
currently in an adjudication proceeding relating to allegations of insider
trading levelled by SEBI and would, therefore, have been barred from conducting
a fast-track rights issue. RIL’s board approved the rights issue nine days after
the SEBI notification, on April 30.
currently in an adjudication proceeding relating to allegations of insider
trading levelled by SEBI and would, therefore, have been barred from conducting
a fast-track rights issue. RIL’s board approved the rights issue nine days after
the SEBI notification, on April 30.
Now , Reliance is Debt Free Company
On June 20,
Ambani announced that RIL was now “debt-free” having raised Rs 1.68
lakh crore since the beginning of April.
Ambani announced that RIL was now “debt-free” having raised Rs 1.68
lakh crore since the beginning of April.
April onwards, Jio
Platforms Limited––a subsidiary of RIL––has been on a fund-raising spree
through stake sales. In 11 investment deals announced so far, the company has
raised around Rs 1.1 lakh crore, by selling over a fifth of its ownership
stake. Facebook , investors from Abu Dhabi and Saudi Arabia invested in Jio
Platform Ltd.
Platforms Limited––a subsidiary of RIL––has been on a fund-raising spree
through stake sales. In 11 investment deals announced so far, the company has
raised around Rs 1.1 lakh crore, by selling over a fifth of its ownership
stake. Facebook , investors from Abu Dhabi and Saudi Arabia invested in Jio
Platform Ltd.
For every 15 shares
held by a shareholder, one share was on offer at a 14% discount on the stock’s
closing value on April 30. On June 3, when the rights-issue closed, it was
reported to have been “oversubscribed” by 1.59 times the announced value of Rs
53,125 crore.
held by a shareholder, one share was on offer at a 14% discount on the stock’s
closing value on April 30. On June 3, when the rights-issue closed, it was
reported to have been “oversubscribed” by 1.59 times the announced value of Rs
53,125 crore.
POSITION BEFORE RELAXATION OF SEBI RULE
One particular
relaxation of an ICDR regulation concerned companies that are facing charges of
violations of Indian securities laws. Rule 99 of the ICDR regulations govern
the eligibility conditions for companies to conduct a rights issue in
fast-track mode. Sub-rule 99 (h) of the ICDR regulations specified that only
those companies against which “no show-cause notices have been issued or
prosecution proceedings have been initiated by the Board and pending against
the issuer or its promoters or whole-time directors as on the reference date”
are permitted to conduct a fast-track rights issue of shares.
relaxation of an ICDR regulation concerned companies that are facing charges of
violations of Indian securities laws. Rule 99 of the ICDR regulations govern
the eligibility conditions for companies to conduct a rights issue in
fast-track mode. Sub-rule 99 (h) of the ICDR regulations specified that only
those companies against which “no show-cause notices have been issued or
prosecution proceedings have been initiated by the Board and pending against
the issuer or its promoters or whole-time directors as on the reference date”
are permitted to conduct a fast-track rights issue of shares.
INSIDER TRADING CHARGES AGAINST RELIANCE
In the letter of
offer for its rights issue, under the heading “outstanding litigation and
defaults,” RIL has made the various disclosures and explanations about the charges
levelled by SEBI against it :
offer for its rights issue, under the heading “outstanding litigation and
defaults,” RIL has made the various disclosures and explanations about the charges
levelled by SEBI against it :
One case referred to
relates to accusations of insider trading in the shares of Reliance Petroleum
Limited. The adjudication order passed by G Mahalingam, a whole-time
member of SEBI, declared that in November 2007, RIL and 12 other companies that
acted as its “front” companies, conducted a “well-planned, fraudulent and
manipulative trading scheme...aiming at reaping huge speculative profits.”
relates to accusations of insider trading in the shares of Reliance Petroleum
Limited. The adjudication order passed by G Mahalingam, a whole-time
member of SEBI, declared that in November 2007, RIL and 12 other companies that
acted as its “front” companies, conducted a “well-planned, fraudulent and
manipulative trading scheme...aiming at reaping huge speculative profits.”
DUE TO SEBI AMENDMENT ,FILING OF DRAFT LETTER OF OFFER DISCARDED
Under the earlier
ICDR regulations, a company seeking to conduct a rights issue to raise over Rs
10 crore was required to first file a draft of its letter of offer with the
SEBI. The regulator was given a month’s time to respond with comments and
observations and to direct any changes to the draft letter of offer following
which the company was required to file a new draft letter complying with the
SEBI’s directions. These requirements were laid out in Sections (1), (2), (4)
and (5) of Rule 71 of the ICDR Regulations.
ICDR regulations, a company seeking to conduct a rights issue to raise over Rs
10 crore was required to first file a draft of its letter of offer with the
SEBI. The regulator was given a month’s time to respond with comments and
observations and to direct any changes to the draft letter of offer following
which the company was required to file a new draft letter complying with the
SEBI’s directions. These requirements were laid out in Sections (1), (2), (4)
and (5) of Rule 71 of the ICDR Regulations.
The SEBI’s April 21
circular did away with these requirements altogether. “Nothing contained in
sub-regulations (1), (2), (4) and (5) of the Regulation 71 shall apply if the
issuer satisfies the conditions mentioned under Regulation 99 of ICDR
Regulations for making a rights issue through the fast track route
circular did away with these requirements altogether. “Nothing contained in
sub-regulations (1), (2), (4) and (5) of the Regulation 71 shall apply if the
issuer satisfies the conditions mentioned under Regulation 99 of ICDR
Regulations for making a rights issue through the fast track route
SEBI RECENT RELAXATION
Creeping acquisition
limit for fresh acquisition by promoters temporarily increased to 10% under the
SEBI Takeover Code
limit for fresh acquisition by promoters temporarily increased to 10% under the
SEBI Takeover Code
Securities and
Exchange Board of India (SEBI) has, on 16 June 2020,
amended1 Takeover Code allowing promoters who
hold 25% or more of shares or voting rights in the target
company but less than the maximum permissible non-public shareholding, to acquire additional
shares or voting rights up to 10% of the voting rights.
Exchange Board of India (SEBI) has, on 16 June 2020,
amended1 Takeover Code allowing promoters who
hold 25% or more of shares or voting rights in the target
company but less than the maximum permissible non-public shareholding, to acquire additional
shares or voting rights up to 10% of the voting rights.
WAS SEBI’S RULE CHANGE JUSTIFIED?
The principle of
disallowing companies accused of violating securities laws from raising capital
by conducting rights issues on the stock market, is that an entity accused of
fraud on its shareholders should not be permitted to seek to raise funds from
the same shareholders.
disallowing companies accused of violating securities laws from raising capital
by conducting rights issues on the stock market, is that an entity accused of
fraud on its shareholders should not be permitted to seek to raise funds from
the same shareholders.
RIL stands accused of
securities law violations by the SEBI, in which the victims of the violations
are RIL’s own shareholders. How does the COVID-19 pandemic warrant permitting a
company accused of securities law violations against its shareholders to raise
funds by means of a rights-issue from the same shareholders?
securities law violations by the SEBI, in which the victims of the violations
are RIL’s own shareholders. How does the COVID-19 pandemic warrant permitting a
company accused of securities law violations against its shareholders to raise
funds by means of a rights-issue from the same shareholders?
The role of the
regulator is to ensure that markets are fair and that the playing field is
level.
regulator is to ensure that markets are fair and that the playing field is
level.
The manner in which
the government and regulatory authorities have amended rules and regulations
for the benefit of India’s biggest company led by the country’s richest man,
makes him wonder yet again whether Mukesh Ambani and his conglomerate are “more
influential” than the government of India.
the government and regulatory authorities have amended rules and regulations
for the benefit of India’s biggest company led by the country’s richest man,
makes him wonder yet again whether Mukesh Ambani and his conglomerate are “more
influential” than the government of India.
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