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MUMBAI : The markets regulator on Tuesday tightened norms for related-party transactions to boost corporate governance standards, approved a framework for spot trading in gold, made it easier for startup founders to retain control and eased merger and acquisitions (M&A) norms for listed companies.

The Securities and Exchange Board of India (Sebi) said people or entities that are part of the promoter group and any entity holding 20% or more in a listed entity, either directly or as beneficial owners, at any time during the preceding fiscal or 10% or more starting 1 April 2023, will be counted as related parties. Sebi said the definition of related party transactions (RPTs) would include deals between listed entities or any of their units with a related party.

Sebi mandated that prior approval of shareholders will be required for material RPTs, or deals that have a threshold value of either 1,000 crore or 10% of the consolidated annual revenue of the company, whichever is lower. “Simply put, any transaction benefiting a related party (even indirectly) would need the approval of audit committee and shareholders of the listed firm," said Makarand Joshi, founding partner, MMJC and Associates, a corporate compliance firm. “When the transaction is with a third party but may benefit the related party, it would be difficult to identify and can sometimes lead to unnecessary allegations of violation on corporates."

Vikram Raghani, a partner at law firm J Sagar and Associates, said the amended norms would help improve corporate governance standards. “From a governance standpoint, this only makes the rules tighter, which should work well for all stakeholders involved," he said.

The regulator also approved the framework for spot trading of gold in India. The framework allows so-called vault managers to accept gold deposits and issue securities called electronic gold receipts (EGRs). EGRs can be traded on exchanges. “EGRs will have the trading, clearing and settlement features akin to other securities. Any recognized stock exchange, existing as well as new, can launch trading in EGRs in a separate segment," the regulator said.

Sebi also approved the amendment to Sebi (Mutual Funds) Regulations to enable the introduction of silver exchange-traded funds, in line with the existing regulatory mechanism for gold ETFs.

It also approved the introduction of the Social Stock Exchange (SSE) to help social enterprises raise funds.“Social enterprises eligible to participate in SSE shall be entities (non-profit organization—NPO and for-profit social enterprise) having social intent and impact as their primary goals. Social enterprises will have to engage in a social activity out of the list of 15 broad eligible social activities approved by the board. Eligible NPOs may raise funds through equity, zero-coupon zero-principal bonds, mutual funds, social impact funds, and development impact bonds," the board said.

Sebi also approved changes to delisting rules to allow acquirers to go for a simultaneous delisting when acquiring control of a listed company, wherein an open offer is triggered.

“If the acquirer is desirous of delisting the target company, the acquirer must propose a higher price for delisting with a suitable premium over open offer price. If the response to the open offer leads to the delisting threshold of 90% being met, all shareholders who tender their shares shall be paid the same delisting price, and if the response to the offer leads to the delisting threshold of 90% not being met, all shareholders who tender their shares shall be paid the same takeover price," the board said.

This move will likely boost M&A activity in publicly traded companies, experts said.

“The current requirement of first being required to sell down to 75% and then attempt a delisting process as per the reverse book building process has been done away with. First-time acquirers can attempt a delisting by offering what they believe is a commercially reasonable price without having to worry about an exorbitant price thrown up by the reverse book building method. With increasing shareholder activism and sound guidance provided to minority shareholders on the reasonableness of the price offered, this should be an attractive proposition for public M&A," Raghani said.

However, the board did not announce a much-anticipated move to allow private equity funds to acquire mutual fund managers.

Sebi on Tuesday also formalized a crucial change for the domestic private equity and venture capital fund manager community, which is expected to increase compliance costs for domestic alternative investment funds (AIFs). The regulator asked AIFs to get a portfolio management Services licence (PMS) if they want to enable co-investments from their investors.

This would increase friction for global limited partners, mostly pension and sovereign funds, looking to reduce their investment costs by making co-investments alongside portfolio funds.

Sebi is yet to define what constitutes as a co-investment versus a limited partner taking an independent decision, but the need for a PMS licence may increase costs for fund managers.

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