The Securities and Exchange Board of India (SEBI) has revised the regulatory framework governing mergers and acquisitions by putting in place norms to improve disclosure and ensure larger participation of public shareholders.
The capital markets regulator said that an unlisted company merging with a listed company must comply with the specified disclosure norms.
The tightening of rules is aimed at wider public shareholding and to prevent large unlisted companies to get listed by merging with small companies.
To ensure this, SEBI said that the public shareholding of the entity created by the merger of an unlisted and a listed company must be more than 25%.
However, it noted that an unlisted company can be merged with a listed company if it is listed on a stock exchange having nationwide trading terminals.
In order to prevent an issue of shares to a select group of shareholders instead of all shareholders in any merger, SEBI said that the pricing formula specified under the Issue of Capital and Disclosure Requirements Regulations shall be applicable.
To ensure larger participation of public shareholders, the requirement to obtain their approval through e-voting has been extended to several scenarios.
Based on the guidelines, e-voting is required for mergers involving an unlisted company where there is a reduction in the voting share percentage of public shareholders by more than 5% of total capital of the merged entity.
Voting is also required when it involves a transfer of whole or substantial undertaking of a listed company and consideration for such transfer is not in the form of listed equity shares.
A merger of an unlisted subsidiary with a listed holding company, where the subsidiary is acquired directly or indirectly from the promoters, also requires voting.
However, to simplify the process, the merger of a wholly owned subsidiary with the parent company shall not be required to be filed with SEBI. Such schemes shall be filed with stock exchanges for the limited purpose of disclosures only, it added.
Mutual funds
SEBI also announced a number of measures pertaining to the mutual fund sector.
It reduced the fees payable by brokers by 25% to Rs 15 per crore of turnover from Rs 20 per crore. This will reduce the overall cost of transactions, benefit investors and promote the development of the securities market, it added.
The regulator also allowed mutual funds to invest in newer instruments such as real estate investment trusts (ReITs) and permitted fund houses to use celebrities for industry-level advertisements.
However, it has added some riders. A mutual fund scheme cannot invest more than 5% of its net asset value in units of a single issuer of REITs and InvITs. This limit is not applicable for investments in case of an index fund or a sector- or an industry-specific scheme pertaining to REITs and InvITs.
Also, a mutual fund scheme cannot invest more than 10% of its net asset value in units of REITs and InvITs. This limit is not applicable for investments in case of an index fund or a sector- or an industry-specific scheme pertaining to REITs and InvITs.
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