Private Placement Norms for Qualified Institutional Buyers Eased By MCA - (16 Oct 2020)

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In a move to push ease of doing business, the Ministry of Corporate Affairs (MCA) has eased the placement norms for qualified institutional buyers. In this regard, the MCA has issued a notification on 16th October and notified the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2020. By the virtue of the said notification rule 14 stands amended. After the coming into effect of the said amendment, a company is not required to pass a Special resolution again and again, in case of offer or invitation of any securities to qualified institutional buyers and from now on, it shall be sufficient if the company passes a previous special resolution only once in a year for all the allotment to such buyers.

Broadly, Qualified Institutional Buyers are those institutional investors who are generally perceived to possess expertise and the financial muscle to evaluate and invest in the capital markets.

In terms of clause 2.2.2B (v) of DIP Guidelines, a ‘Qualified Institutional Buyer’ shall mean:

a. Public financial institution as defined in section 4A of the Companies Act, 1956;

b. Scheduled commercial banks;

c. Mutual funds;

d. Foreign institutional investor registered with SEBI;

e. Multilateral and bilateral development financial institutions;

f. Venture capital funds registered with SEBI.

g. Foreign Venture capital investors registered with SEBI.

h. State Industrial Development Corporations.

i. Insurance Companies registered with the Insurance Regulatory and Development Authority (IRDA).

j. Provident Funds with minimum corpus of Rs.25 crores

k. Pension Funds with minimum corpus of Rs. 25 crores)

A Qualified Institutional Placement is a capital raising tool wherein a listed company can issue equity shares, fully and partly convertible debentures, or any security other than warrants that are convertible into equity shares. But unlike in an IPO or an FPO, only institutions or qualified institutional buyers can participate in a QIP.

The present amendment is a welcome step whereby the Companies now does not have to indulge into repeated action of passing resolution in this regard and only a single resolution would suffice the cause.

Tags : NORMS EASING OF MCA