ARC’s exempted to hold minimum 26% shareholding in borrower companies

Under the Securitization Companies and Reconstruction Companies (Reserve Bank) Guidelines and Directions, 2003 (“Guidelines”), every Reconstruction Company (“RC”) is required to frame a policy, duly approved by its board of directors for conversion of debt into shares of the borrower company. The shareholding of the RC as per Guidelines shall not exceed 26% of the post converted equity of the borrower company.

RBI pursuant to its circular dated November 23, 2017 has now exempted Asset Reconstruction Companies (“ARCs”) from the requirement of holding minimum 26% shareholding in any company, subject to the following conditions:

  • The ARC has a minimum of Rs. 100 Crores  as ‘net owned funds’ on an ongoing basis;
  • At least half of the board of directors of such ARC comprises of independent directors;
  • The board of directors of the ARC has adopted a policy for conversion of debt into equity; and
  • The equity shares acquired by the ARC are valued on a monthly basis.

The extent of shareholding post conversion of ‘debt’ into ‘equity’ shall be in accordance with the Foreign Direct Investment limit, applicable to any specific sector.