SEBI Moves To Prevent Back Door Listing Of Large Companies Via Mergers
Regulator looks to keep holding of non-promoters steady, evokes mixed reactions from experts.
The Securities and Exchange Board of India on Saturday issued guidelines for mergers of unlisted companies with listed companies. The capital market regulator says it wants to “prevent (a) very large unlisted company to get listed by merging with a very small company.”
The guidelines require public shareholders of the pre-merger listed company, and the qualified institutional buyers of the unlisted company to hold no less than a total of 25 percent in the merged entity.
The regulator has also asked for listed companies to seek approval from its public shareholders in cases when:
- Merger with an unlisted company results in the public’s voting share falling by more than 5% in the merged entity.
- Consideration for such transfer is not in the form of listed shares.
- Listed company acquires shares of an unlisted subsidiary from its promoters.
The reaction to these guidelines has been varied. "The regulations attempt to ensure the rights of the public shareholders are protected and also get them greater look-in on mergers with unlisted subsidiaries," said Sanjeev Krishan, partner and leader for deals at PwC India. Meanwhile, Nitin Potdar of J Sagar Associates was highly critical of the regulator’s move.
How do you reconcile genuine valuations with these guidelines? Is SEBI suggesting that valuations be manipulated? If mergers are done on a fair valuation, as per SEBI norms, and shareholding is changing, why should there be a problem with that?Nitin Potdar, M&A Partner, J Sagar Associates
Easing reporting requirements in the case of mergers of wholly owned subsidiaries, SEBI said that it will not seek a filing from the parent company, which can instead report the scheme of arrangement to the stock exchanges.