MUMBAI: The Securities and Exchange Board of India (Sebi) on Saturday tightened merger and acquisitions norms , lowered fees for brokers, allowed mutual funds to invest in real estate and infrastructure investment trusts and permitted celebrity endorsements of mutual funds
At its board meeting in Jaipur, the regulator decided that in case of merger of an unlisted company with a listed entity, it would have to meet the minimum public shareholding requirement of 25% .
“The holding of pre-scheme public shareholders of the listed entity and the qualified institutional buyers of the unlisted company, in the post scheme shareholding pattern of the “merged” company shall not be less than 25%. The objective is to have wider public shareholding and to prevent very large unlisted company to get listed by merging with a very small company,” Sebi said in a press statement posted on its website.
The regulator said unlisted company would be allowed to be merged with a listed company if it is listed on a stock exchange having nationwide trading terminals. Besides, companies would have to obtain public shareholders approval through e-voting if the schemes involving merger of an unlisted company results in reduction in the voting share percent of pre-scheme public shareholders by more than 5% of total capital of merged entity. This would also apply in the case of shares of unlisted subsidiary being acquired by the holding company directly or indirectly from the promoter group.
“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 & leader-deals, PwC India.
The Sebi board also allowed mutual funds to invest in hybrid instruments such as real estate investment trusts(REITs) and infrastructure investment trusts (InvITs).
Mutual funds, however, cannot invest more than 10% of its net asset value in units of REITS and InvITs. Under all its schemes, no mutual fund can own more than 10% of units issued by a single issuer of REITs and InvITs.
The Sebi board also reviewed advertisement guidelines for mutual funds and allowed celebrity endorsement of mutual funds at industry level. The regulator also lowered fees for market intermediaries.
The regulator has also empowered stock exchanges to take action against listed companies for non-compliance by imposing fines and suspension of trading .Sebi said this would reduce cost of undertaking adjudication actions in case of minor violations for the listed entities.
“In regulation of listed companies, Sebi draws a lot of comfort from stock exchanges who are first-line regulators. Delegating responsibilities to them also makes them accountable for any malfunctioning in the listed company. Though there remains a legal issue – whether quasi-judicial functions of imposing penalty can be delegated by way of subordinate regulations, when parliament has cast those obligations on Sebi under statutes. It needs to be seen if it passes muster from the courts when exchanges would start using those powers,” said Sumit Agrawal,partner,Suvan Law Advisor.