NEW DELHI: In move to protect the interest of public shareholders, Securities and Exchange Board of India (Sebi), has laid out new rules that will discourage very large unlisted companies to get listed by merging with a very small company. This is also expected to improve disclosure standards.
Last month Sebi’s board approved a proposal to amend the regulations and strengthen the existing norms for listing. Under the revised norms, the holding of pre-scheme public shareholders of the listed entity as well as that of qualified institutional buyers (QIBs) of the unlisted company should not be less than 25 per cent in the merged entity.
The revised norms are expected to allow wider public shareholding and deter large unlisted company from getting listed by merging with a very small company.
“Through these proposed changes, SEBI seeks to ensure that appropriate disclosures are made in line with the requirements for an abridged prospectus, shareholder approvals are sought where these is dilution of voting rights, together with maintaining the minimum public shareholding of 25 per cent.
However, the real purport of this decision will only be known when the related regulations are amended, and one sees the fine print,” said Sai Venkateshwaran, Partner and Head, Accounting Advisory Services KPMG SEBI has also developed a pricing formula — as specified in the ICDR (Issue of Capital and Disclosure Requirements) norms — which will prevent issue of shares to select group of shareholders only as against existing formula of issue to all shareholders. Since an unlisted company results in reduction in the voting share of pre-scheme public shareholders by over 5 per cent of total capital of merged entity can be approved through e-voting.
As per the new norms, companies will be required to submit compliance report duly certified by company secretary, CFO and managing director.