SEBI’s Big Market Reforms: Buybacks Return, AIF Approvals Get Faster

[00:00:00]But let's also get in Sandeep Parekh who is the managing partner of Finsec Law Advisors to better understand these reforms and what they mean for companies and investors.

[00:00:11]Hi Sandeep. So let's just start up with among the many reforms that SEBI has reintroduced, as we said open market buybacks through stock exchanges have been reintroduced from August. So in your opinion, what are the key changes and how will this really impact companies and shareholders?

[00:00:29]>> Yeah. So you know, I think couple of things I guess. First, let me just talk about the broad theme and then I'll come to maybe three, four of the specifics.

[00:00:39]Uh I think with respect to buyback, I think it's kind of status quo entity which means you know, the position which was there couple of years back which allowed open market purchases for for buybacks which meant the company could go to the market and uh you essentially buy the shares as opposed to going through a tender process. So they've re introduced that back and I think the trigger was really uh there was some tax issue which which uh which has uh now been corrected and therefore it's it's it's it's uh okay to do this.

[00:01:09]The second is um you know, the this one second.

[00:01:15]The second is really uh the mutual funds being able to borrow more easily.

[00:01:20]Uh and uh that's for intraday uh needs really. It's it's not not a not a longer term this thing.

[00:01:28]Uh And uh third is really I think they've simplified AIFs launch.

[00:01:38]And uh essentially for many of many of them, they've really uh For many of Sorry, I'm getting a lot of calls for some reason.

[00:01:50]Um So for many of them, you know, the AIFs are going to be launched immediately. They don't have to for SEBI approval.

[00:01:57]And um essentially, you know, the I'll have to take this call. Is this live?

[00:02:07]>> Yes.

[00:02:09]Uh we're just going to come back to Sandeep in just a moment. But like he was saying, there have been a lot of proposals that have been introduced.

[00:02:17]Among these are the intraday mutual funds and municipal issuers have also gotten a late leeway.

[00:02:24]Um if you talk about the municipal bonds, they can be issued with a face value of 10,000 instead of only 1 lakh.

[00:02:32]And especially when you speak about the benefits for mutual funds specifically, mutual funds can now borrow during the day to manage temporary liquidity mismatches. The safeguards for mutual funds have also been eased. Um they cannot be used for leverage and they must be be repaid by the end of the day.

[00:02:47]Now, as Sandeep was previously talking about AIFs, let's go into that really quickly. SEBI has launched a Garuda mechanism to fast-track AIF scheme approvals. This means that the scheme launch timeline has also been reduced to 10 working days. And AIF only schemes and angel funds have been exempt from filing the PPM with SEBI.

[00:03:07]Uh we have Sandeep back, I believe.

[00:03:11]Okay, perfect. Let's just go back to Sandeep. Hi Sandeep, nice to have you back.

[00:03:15]Um I'll just hope Do you want to continue on what you were going on before? Sure.

[00:03:19]>> Yeah, sorry. I had some >> No worries, that's fine.

[00:03:21]>> So So I think on the buyback, I think they've reintroduced uh market buyback process, which I think is transparent. And I think with the last budget, I think the the tax rules have become even. And that's why I think that simplifies things. What they've done additionally is they removed the ability of promoters. And they they've done it kind of through the exchange mechanism.

[00:03:44]So really, there'll be an icing freeze on the promoter holdings. So they will not be able to sell even if they want to.

[00:03:50]Uh they've also made merchant bankers optional in a buyback.

[00:03:53]So which which means you know, they've sent the ship around home. They said company and its auditors need to kind of take the calls and we will live this any mischief of course post facto said he will look at it.

[00:04:05]The third is I think mutual funds get get a much wider intraday borrowing.

[00:04:11]So which essentially means any kind of during the day there's some crisis or kind of solvency issues they'll they'll be able to borrow more liberally whereas you know, it's it's like I can call it Cinderella borrowing. It has to be repaid by the close of the day. It cannot become the leverage beyond beyond the day. Beyond the day there is little bit of leverages around which continues as it was.

[00:04:33]The fourth thing is the Garuda or the AF filings which have been dispensed with for for sophisticated more sophisticated investors. AFs anyway sophisticated investors. So for sophisticated investors it's 10 working days and for very sophisticated investors they made it instant which means as soon as you file you can start raising capital. And I think there a couple of other things which respect to transmission which will impact people who had somebody who's recently deceased I think it'll make the process of transmission faster and most importantly I think SEBI's own code of conduct is back on track so they've got the final internal code of conduct which is going to be written into law and I think the final from what I heard from the interview the final version is will be out now as soon as notified so we'll know in a few days I guess.

[00:05:27]So I think overall I think it's I would say it's ease of doing business number two much more trust on the company and three I think it will mean that SEBI will have to beef up its own ability to supervise really.

[00:05:43]>> Right.

[00:05:43]>> Because you know, many of these things are becoming post facto.

[00:05:46]>> Right. You mentioned that promoters have also been barred from participating in these buybacks. So, I just wanted to understand a little bit, in your opinion, do you think this is a good safeguard, or could it sort of discourage some companies from going ahead?

[00:06:01]>> No, so anyway, you know, typically promoters do not participate in buybacks.

[00:06:06]So, I don't think it's a big big problem, really. They can Promoters can anyway sell, right? They don't have to go through the buyback route to sell.

[00:06:14]And uh you know, there's now with tax parity, there's no kind of additional benefit or kind of an uh kind of a drawback uh in going going with a buyback through uh a market route. So, yeah, it's it's not anyway It was never a route for promoters to uh to to tender the shares.

[00:06:36]>> Right. Um, so, I just wanted to come on the mutual funds aspect a little bit as well. Uh as we know, SEBI has allowed mutual funds to do intraday intraday borrowing for liquidity management. What do you think are the risks involved, and do you think this was a necessary reform?

[00:06:51]>> No, no. So, it's not They're not being allowed They're I think they're expanded what they can do intraday.

[00:06:58]Uh they were always allowed, but I think overall, I think it's it's good because, you know, you want any kind of shocks in the system to be managed during the day.

[00:07:06]Again, this is not leverage. Leverage would be, you know, when it's held beyond that one day. This is just kind of managing of liquidities is how I'd put it.

[00:07:15]Um, so, you know, the it may sound like leverage, but it's actually just managing the money for within the day itself. So, I think it's it's a very good reform. It will reduce It will Again, it it it won't affect you and me directly, but it'll make the system more resilient and safer.

[00:07:32]>> And um as a market regulator, are we seeing a sort of clear shift now in SEBI's approach to becoming more facilitative and a business-friendly in a way?

[00:07:42]>> Yeah, absolutely. So, I think three of these things are actually now uh very very focused towards ease of doing business. You know, I mentioned instant uh raising of money with uh AIF for accredited investors. Uh the for for two of them, they've done away with the concept of merchant bankers coming in, including buybacks and AIFs.

[00:08:04]Uh and uh you know, many of these are post facto kind of checks really. So, they're essentially saying that, you know, we're going to uh reduce the regulations, but at the same time we're going to put uh uh more and more uh cameras which which will be looking at things and some more disclosures and at the same time also presumably more checks and balances after, you know, so for instance, you know, so you do instant AIFs and there is some mischief, there there will be kind of uh higher supervision by SEBI uh addressed to that mischief.

[00:08:36]>> Right. I might just want to hop on to the AIF point that you were making. So, like you said, the new Garuda framework will significantly speed up these AIF launches. Just a little to get a little more deeper understanding, how big of a boost is this for the alternative investment ecosystem in India?

[00:08:52]>> I think it's um I won't say it's a big boost, but it's a certainly kind of an important boost from uh the perspective of speed. Uh you know, you don't have to wait for a month, 2 months.

[00:09:05]Uh so, it certainly kind of improves ease of doing business. And um it may not increase the num- numbers directly, but I think it overall it makes the business climate uh easier.

[00:09:18]>> Right. And uh just to get your perspective and on this, what's one reform that you were hoping for maybe through this that you thought didn't come through in this meeting?

[00:09:28]>> No, so actually a couple of them really in terms of uh I think many were discussed in the press. Um but uh they they didn't come up in in including something to do with reforms with respect to the board board platform.

[00:09:44]The OBP platform there were certain reforms which which were coming up.

[00:09:48]And you know I think again that was the press which had mentioned three four other reforms. They did not come up and that's fine I think.

[00:09:55]They all gone through a consulting all of not all of them but many of these have gone through a consultation process. The code of conduct which was long awaited is finally kind of become law which will so I think these are very important reforms for self regulation of SEBI, for self regulation of the companies itself and of course like I said it has to be capped with better supervision.

[00:10:19]>> [clears throat] >> Right. Sandeep just for the final question obviously we're in a time of great global volatility right now. Just want to understand how do you think these changes position the Indian capital markets globally?

[00:10:33]>> So I think I think that is really the broad theme if you ask me how to kind of not just make life easier for the foreign portfolio investors but to make it easier for Indian companies.

[00:10:44]So I think that's the overarching theme and I hope they do more and more of similar stuff making life easier for the honest people and then automatically you know the 1% which is kind of the black sheep you know go you go after them instead of the me making laws which hurt 100% of all people including that 1% black sheep. So I think it's a good good overarching theme we've been seeing for the past two three months and I hope that continues and certainly you know this this will if you you put it all together it will certainly improve business climate.

[00:11:22]>> Thank you so much Sandeep. This has been really insightful. We've gotten a lot of information.