Special Situation Funds for resolution of stressed assets | Prior Shareholders’ approval required for appointment of rejected candidates | SEBI seeks to regulate ESG Rating Providers (ERPs)

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SEBI has recently introduced the following significant changes:

A. SEBI introduces Special Situation Funds (SSFs) for investment in stressed assets: In order to address the growing concerns of stressed assets, SEBI has introduced a new category of Category I Alternative Investment Fund (AIF), which will invest only in ‘special situation assets’ as per the terms and conditions prescribed by SEBI. There are various regulatory norms introduced for SSFs, which are analyzed separately. In addition to changes focussed on SSFs, SEBI has exempted large value funds for accredited investors from the requirement of filing private placement memorandums (PPMs) through merchant bankers at least 30 days prior to the launch of schemes.

B. Amendments to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015: Key changes include the following-
• Prior approval of shareholders required for appointment/ re-appointment of directors/manager who failed to earlier get elected as director/manager by the shareholders at a general meeting;
• To enhance ease of dealing in securities markets by investors, it has been decided that listed companies shall henceforth issue the securities in dematerialized form while processing certain service requests.

C. SEBI seeks to regulate ESG Rating Providers (ERPs): In an important move, SEBI is seeking to bring ERPs within its ambit to ensure transparency and balance the needs of all stakeholders. With the growing importance of ESG globally, SEBI feels it is imperative to have a regulated environment of ERPs, which is currently unregulated. This will have a direct bearing on anyone looking to procure an ESG rating, including listed companies, AIFs, mutual funds, etc. Following proposals are recommended and public views are sought on the same:

• Accreditation of ERPs to assign ESG ratings to listed entities and listed securities and anyone who wish to avail ESG ratings;
• Accreditation criteria for eligible entities such as Credit Rating Agencies and Research Analysts;
• Transparency requirements and disclosures required to be made by ERPs;
• Governance structures of ERPs and prevention of conflict of interest;
• Proposed business model for ERPs in India.

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