To protect the interest of public shareholders, Sebi has strengthened regulations for mergers whereby very large unlisted companies will be restrained from getting listed by merging with a very small company.
Besides, to improve disclosure standards, an unlisted company merging with a listed one will have to comply with the requirement of disclosing material information.
The move comes after Sebi's board last month approved a proposal to amend the regulations.
Moving ahead to streamline as well as strengthen the norms, the Securities and Exchange Board of India (Sebi) said in a notification that an unlisted company can be merged with a listed one only if it is listed on a stock exchange having nationwide trading terminals.
With 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 objective of bringing these changes is to have wider public shareholding and prevent very large unlisted company from getting listed by merging with a very small company.
Among others, the pricing formula -- as specified in the ICDR (Issue of Capital and Disclosure Requirements) norms -- will be followed in order to prevent issue of shares to select group of shareholders instead of all shareholders pursuant to the scheme.
Sebi said schemes involving merger of an unlisted company resulting 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.
This facility can be used for schemes involving transfer of whole or substantially the whole of the undertaking of a listed company provided consideration for such transfer is not in the form of listed shares.
Further, schemes involving merger of unlisted subsidiary with listed holding company where the shares of the unlisted subsidiary have been acquired by the holding company directly or indirectly from the promoters/promoter group can also be subject to e-voting.
Companies will be required to submit compliance report confirming compliance with the circular and accounting standards duly certified by company secretary, CFO and managing director.
As per the regulator, arrangements involving merger of a wholly-owned subsidiary with the parent company will not have to be submitted to it. Such schemes have to be filed with stock exchanges for the limited purpose of disclosures only.