Bankers turned benevolent again as they paved the way for Ruchi Soya’s FPO. As 2021 drew to a close, the lenders agreed in unison to release the pledge. As per FPO Prospectus, consortium comprising State Bank of India by letter dated June 1, 2021, Union Bank of India void letter dated June 3, 2021, Canara Bank void letter dated June 3, 2021, Indian Bank void letter dated June 3, 2021 dated June 3, 2021, and Punjab National Bank, by its letter dated June 8, 2021, have collectively agreed to release the undertaking. In September 2021, SBI CAP Trustee Company (common security trustee appointed by the consortium) confirmed the release of the pledged shares. The lenders also granted Ruchi Soya an extension of time to re-pledge 80% of the promoters’ stake from 90 days after the release date (i.e. December 16, 2021) to 180 days after the release date. of release (i.e. until March 15, 2022) and the remaining 20% within 30 days of the end of the blocking period, i.e. three years. In doing so, the lenders helped Patanjali comply with SEBI ICDR (capital issuance and disclosure requirements) foreclosure standards.
The provisions of the ICDR regulations (113 and 114) stipulate that the minimum participation of the promoter must be 20% of the post-issue capital and, in the calculation of this contribution, the shares which are pledged are not eligible. In the case of Ruchi Soya, the entire shareholding was pledged and this would have meant that the promoter (Patanjali) would have had to contribute 20% of the FPO issue size, or ₹860 crore, as a contribution. Instead, they asked the bankers to release the pledge, rather to provide additional funds. In an FPO, either the company can sell new shares or offer existing shares to investors. Ruchi Soya’s FPO was a new share issue worth ₹4,300 crore. Therefore, it was a dilution issue, with the developer’s participation expected to decrease after the FPO.
Were the bankers entitled to release the pledge on the simple assurance of the borrower that the participation would be repaid? A legal expert from a Mumbai-based firm goes on to explain, “Before a company launches a public issue, it needs to get buy-in from lenders, in case shares are pledged. Ultimately, it is a business agreement between borrower and lender. Otherwise, the FPO cannot pass, or the company must apply for a specific exemption from SEBI.
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