The extant SEBI (Delisting of Equity Shares) Regulations 2009 (“Delisting Regulations”) requires listed subsidiary desirous of getting delisted to follow the norms prescribed therein, including reverse book building process.
Yesterday, SEBI floated a Consultation Paper proposing that listed subsidiaries can merge with their listed holding companies by becoming a delisted wholly-owned subsidiary of the listed holding company. This arrangement is proposed to be exempted from following the Delisting Regulations. According to the proposal, all the shareholders of the subsidiary would become shareholders of the listed holding company and be provided share swap through a scheme of arrangement in lieu of their shareholding in the subsidiary.
SEBI noted that the merger of such companies as having the same or similar business has significant incremental shareholder value resulting from synergies by working together.
The paper provides an illustrative example involving a listed parent company and its listed subsidiary where the parent company holds 60% equity shareholding. The balance is shareholding of public shareholders. The promoter group holds 53% shareholding in holding companies, whereas the balance is held by the public shareholder. The allotment would be based on a share swap ratio as laid down in the scheme of arrangement. Accordingly, the equity shareholding of the promoter group in the parent company would reduce from its 53% to the extent of increase in equity shareholding of public shareholders on account of allotment of equity shares to the public shareholders of the subsidiary. Since the subsidiary would become a wholly-owned subsidiary, it would be delisted from the exchanges.
However, SEBI observed that such arrangements can also have unfavourable impacts such as industry-specific constraints and transactions that can destroy value (such as costs of transfer, stamp duties and state-level constraints). Additionally, cultural differences were observed to potentially arise such as where the listed subsidiary being externally acquired by the listed holding company.
SEBI accordingly thought it prudent to place safeguards against misuse of this route to the detriment of investors. Accordingly, this exemption would only be applicable to the scheme of arrangement between a listed parent and subsidiary. NCLT approval is going to be mandatory. An independent valuation of shares for share swap would be required. The votes cast by public shareholders in favour of the proposal must amount to at least twice the number of votes cast by public shareholders against it. The process of this proposed scheme shall be identical to a process followed in a merger wherein the holding listed company and the listed subsidiary shall seek no objection from stock exchanges and SEBI for the proposed merger in terms of Regulation 37 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and the Circulars issued thereunder.
The minimum duration of listing for shares of the listed subsidiaries is proposed to be 3 years for availing this route. Additionally, a lock-in of 3 years is proposed from further restructuring by the listed holding company. Finally, this route will not be available to companies which have adverse orders against them by SEBI. The extant SEBI (Delisting of Equity Shares) Regulations 2009 (“Delisting Regulations”) requires listed subsidiary desirous of getting delisted to follow the norms prescribed therein, including reverse book building process.
Yesterday, SEBI floated a Consultation Paper proposing that listed subsidiaries can merge with their listed holding companies by becoming a delisted wholly-owned subsidiary of the listed holding company. This arrangement is proposed to be exempted from following the Delisting Regulations. According to the proposal, all the shareholders of the subsidiary would become shareholders of the listed holding company and be provided share swap through a scheme of arrangement in lieu of their shareholding in the subsidiary.
SEBI noted that the merger of such companies as having the same or similar business has significant incremental shareholder value resulting from synergies by working together.
SEBI proposesHowever, SEBI observed that such mergers can also have unfavourable impacts such as industry-specific constraints and transactions that can destroy value (such as costs of transfer, stamp duties and state-level constraints). Additionally, cultural differences were observed to potentially arise such as where the listed subsidiary being externally acquired by the listed holding company.
SEBI accordingly thought it prudent to place safeguards against misuse of this route to the detriment of investors. Accordingly, this exemption would only be applicable to schemes of arrangement between a listed parent and subsidiary. NCLT approval is going to be mandatory. An independent valuation of shares for share swap would be required. The votes cast by public shareholders in favour of the proposal must amount to at least twice the number of votes cast by public shareholders against it. The process of this proposed scheme shall be identical to a process followed in a merger wherein the holding listed company and the listed subsidiary shall seek no objection from stock exchanges and SEBI for the proposed merger in terms of Regulation 37 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and the Circulars issued thereunder.
The minimum duration of listing for shares of the listed subsidiaries is proposed to be 3 years for availing this route. Additionally, a lock-in of 3 years is proposed from further restructuring by the listed holding company. Finally, this route will not be available to companies which have adverse orders against them by SEBI.