BackSebi looks to prevent misuse of norms for listing without IPO
For transfer of shares and listing without an IPO, at least 25% of share capital of the unlisted entity has to be allotted to the public shareholders of the listed entity
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Capital markets regulator Securities and Exchange Board of India (Sebi) on Monday tweaked the norms for the so-called scheme of arrangement in order to prevent companies from skipping public issue while entering into certain arrangements for the listing of new shares on exchanges merely with the approval of a high court.
Sebi said that a listed entity may enter a scheme of arrangement with an unlisted entity to list new shares on a stock exchange without an initial public offering (IPO) if the shares proposed to be listed are allotted by the unlisted issuer to the stakeholders of the listed entity under a scheme of reconstruction or amalgamation that has been approved by one of the high courts.
Sebi said that for such transfer of shares and a subsequent listing without an IPO, at least 25% of the share capital of the unlisted entity has to be allotted to the public shareholders of the listed entity.
In such cases, if the shares allotted by the unlisted (transferee) entity are in lieu of locked-in shares of the listed (transferor) entity, such shares will be subject to a lock-in for the remaining period.
Additionally, while entering a scheme of arrangement, the listed company will have to submit a valuation report to Sebi if there is a change in the shareholding pattern of the listed entity and the resultant company post the scheme of arrangement.
Further, the listed firm has to ensure that the scheme of arrangement submitted to the high court for sanction is kept open for voting by public shareholders through postal ballot and e-voting.
Sebi clarified that in case of the hiving off of a division of a listed entity and its merger with a newly formed or existing unlisted issuer, there will not be any additional lock-in on shares, if the paid-up share capital of the unlisted issuer is only to the extent of that required for incorporation purposes and a subsequent listing.
However, in case of mergers, if the paid-up share capital of the unlisted issuer seeking listing is more than the requirement for incorporation, the promoters’ shares will be locked in, in such a way that 20% of the post-merger paid-up capital of the unlisted issuer is locked for three years post the listing of its shares.
Additionally, Sebi said a listed entity intending to list its shares with differential rights may do so without an IPO if the shares are issued to all the existing shareholders by way of rights or bonus issue.
A listed entity wanting to list its warrants without carrying out an IPO may do so if the warrants are issued as a combined offering of non-convertible debentures (NCDs) and through qualified institutional placements (QIPs).
For such listings without an IPO, the NCDs and warrants will be traded in the minimum trade lot of ₹ 1 lakh, Sebi said.
The market regulator separately said that in order to achieve the minimum level of public shareholding—which is 25%—the listed entity will have options including a public issue of shares, an offer for sale (OFS) of shares held by promoters to the public, sale of shares held by promoters through the normal secondary market, or an institutional placement programme (IPP).
A company may also opt for a rights issue for a bonus issue, with promoters forgoing their entitlement to shares that may arise from such an issue.
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