|
Guidelines for Bank Finance for PSU Disinvestments: Stipulation of
Lock-in Period for Shares
DBOD.
BP. BC. 83 - 21.04.137 dated 21st March 2003
Please
refer to paragraph 3 of Circular No. DBOD. BP. BC. 17/ 21.04.137/ 2002- 2003
dated 16 August 2002 advising banks that, if the PSU disinvestment shares
against which bank finance is proposed to be extended are illiquid due to
lock-in period/ restrictive clauses, the successful bidder, to whom the bank
proposes to extend finance, should obtain necessary approval from Government of
India and other regulatory agencies exempting such equity holdings from these
restrictions before bank finance can be extended.
2.
The matter has since been reviewed, in consultation with the
Government of India, and it has been decided that:
i.
Banks should, while deciding to extend finance to the
borrowers who participate in the PSU disinvestment programme, advise such
borrowers to execute an agreement whereby they undertake to:
a.
Produce the letter of waiver by the Government for disposal of shares
acquired under PSU disinvestment programme during the lock-in period, or
b.
Include a specific provision in the documentation with the Government
permitting the pledgee to liquidate the shares during the lock-in period, in
case of shortfall in margin requirement or default by the borrower.
ii.
Banks may extend finance to the successful bidders even though the shares
of the disinvested company acquired/ to be acquired by the successful bidder are
subjected to a lock-in period/ other such restrictions which affect their
liquidity, subject to fulfillment of following conditions:
a.
The documentation between the Government of India and the successful
bidder should contain a specific provision permitting the pledgee to liquidate
the shares even during lock-in period that may be prescribed in respect of such
disinvestments, in case of shortfall in margin requirements or default by the
borrower.
b.
If the documentation does not contain such a specific provision, the
borrower (successful bidder) should obtain waiver from the Government for
disposal of shares acquired under PSU disinvestment programme during the lock-in
period.
3.
As per the terms and conditions of the PSU disinvestments by the
Government of India, the pledgee bank will not be allowed to invoke the pledge
during the first year of the lock-in period. During the second and third year of
the lock-in period, in case of inability of the borrower to restore the margin
prescribed for the purpose by way of additional security or non performance of
the payment obligations as per the repayment schedule agreed upon between the
bank and the borrower, bank would have the right to invoke the pledge. The
pledgee bank�s right to invoke the pledge during the second and third years of
the lock-in period, would be subject to the terms and conditions of the
documentation between Government and the successful bidder, which might also
cast certain responsibilities on the pledgee banks.
4.
It is clarified that the concerned bank must make a proper appraisal and
exercise due caution about credit worthiness of the borrower and the financial
viability of the proposal. The bank must also satisfy itself that the proposed
documentation, relating to the disposal of shares pledged with the bank, are
fully acceptable to the bank and do not involve unacceptable risks on the part
of the bank.
5.
In terms of IECD Circular No. 10/ 08.12.01/ 2000- 2001 dated 8 January
2001, banks are precluded from financing investments of NBFCs in other companies
and inter-corporate loans/ deposits to/ in other companies. The position has
been reviewed and banks are advised that SPVs, which comply with the following
conditions would not be treated as investment companies and therefore would not
be considered as NBFCs:
(a)
They function as holding companies, special purpose vehicles, etc. with
not less than 90 per cent of their total assets as investment in securities held
for the purpose of holding ownership stake,
(b)
They do not trade in these securities except for block sale; and
(c)
They do not undertake any other financial activities.
SPVs,
which satisfy the above conditions, would be eligible for bank finance for PSU
disinvestments of Government of India.
6.
Please acknowledge receipt.
|