The Fine Print of QIP: Examining OneSource’s Eligibility After Scheme of Arrangement

Facts of the case

• The board of directors of OneSource Specialty Pharma Limited (“OneSource”) unlisted public company which was supposed to get listed pursuant to the proposed transaction, approved a scheme of arrangement amongst
• OneSource;
• Strides Pharma Science Limited (“Strides”), whose shares are listed on the BSE Limited (“BSE’) and the National Stock Exchange of India Limited (“NSE”);
• Steriscience Specialties Private Limited (“SteriScience”), which is a private limited company;
• The Scheme contemplates demerger of the Oral Soft Gelatin and Identified CDMO business (including investments in Onesource) of Strides and Identified Sterile Injectables business of Steriscience into OneSource.
• During National Company Law Tribunal approval proses, Onesource was evaluating to undertake a fund-raising by way of a qualified institutional placement (“QIP”) of its equity shares of the same class as that of Strides under Chapter VI of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR”), immediately post listing of its shares on BSE and NSE.

SEBI Issue of Capital & Disclosure Regulations (ICDR) Provisions w.r.t QIP:

• In terms of Regulation 172 of ICDR, a listed issuer may make a qualified institutions placement of eligible securities if it satisfies the conditions provided thereto, the extracts of which are reproduced below (with the relevant portion highlighted) for ease of reference:
  • b) the equity shares of the same class, which are proposed to be allotted through qualified institutions placement or pursuant to conversion or exchange of eligible securities offered through qualified institutions placement, have been listed on a stock exchange for a period of at least one year prior to the date of issuance of notice to its shareholders for convening the meeting to pass the special resolution. ‘

Provided that where an issuer, being a transferee company in a scheme of compromise, arrangement and amalgamation sanctioned by a High Court or approved by a tribunal or the Central Government under sections 230 to 234 of the Companies Act, 2013, whichever is applicable makes qualified institutions placement, the period for which the equity shares of the same class of the transferor company were listed on a stock exchange having nation-wide trading terminals shall also be considered for the purpose of computation of the period of one year.

OneSource Challenge:

• OneSource, being the proposed issuer and the transferee company pursuant to the Scheme, is proposing to make the QIP of the same class of shares as that of Strides’, being the transferor company, whose shares have been listed on BSE and NSE. For the purpose of the said QIP, OneSource proposes to avail the exemption provided under Regulation 172 (b) of the ICDR.
• Steriscience, being an unlisted company and also a transferor company under the Scheme, will have any impact on OneSource’s ability to claim the exemption pursuant to the proviso to Regulation 172(b) of the ICDR?

OneSource approached SEBI to provide its informal guidance on the applicability of exemption under regulation 172(b) of ICDR.

SEBI View

Eligibility conditions for exemption as provided under regulation 172 of the ICDR:

• A listed issuer is eligible to conduct a QIP of securities only if it fulfils the conditions laid down under Regulation 172 of ICDR. In term of clause (b) of sub-regulation (1) of regulation 172, one of the conditions for QIP by listed company is that the class of shares being offered through QIP must be listed on the recognized stock exchange for a minimum period of 1 year prior to the date of issuance of the notice to the shareholders.
• Further proviso to regulation 172(1)(b) Provided that where an issuer, being a transferee company in a scheme of compromise, arrangement and amalgamation sanctioned by a High Court or approved by a tribunal or the Central Government under sections 230 to 234 of the Companies Act, 2013, whichever is applicable makes qualified institutions placement, the period for which the equity shares of the same class of the transferor company were listed on a stock exchange having nation-wide trading terminals shall also be considered for the purpose of computation of the period of one year. Here too, the focus is on the listing status of the transferor company for the purpose of availing the benefit.
• Though the reference in clause (b) is to the “Transferor Company” section 13(2) of the General Clauses Act, 1897 provides that in all central acts and regulation, unless there is anything repugnant in the subject or context, the word in the singular shall include the plural and vice versa.
• After making reference to the circular in 2008 which inserted the proviso to afford the benefit to a transferee company proposing QIP which inter-alia provides transferee company may take into account the listing history of the listed companies with which they have entered into the scheme of arrangement. Thus, to avail the benefits all transferor companies involved in the scheme ought to be listed entities.

SEBI Opinion

• In the current case, two transferor companies are involved. Although, equity shares of Strides have been listed for more than one year, Steriscience, other company involved is an unlisted private company. Since all transferor companies are not listed entities, the transferee company i.e. OneSource may not able to avail the benefits under ICDR regulation.

Action by OneSource

• On account of denial of the exemption by SEBI, OneSource hurried up in its QIP before getting equity shares listed on the bourses.
• On 14^th November 2024, the scheme was approved by the Hon’ble NCLT and approval order was delivered on 19^th November 2024.
• On 16^th October 2024, Strides /OneSource announced that it has received an equity commitment of INR 801 crore from a group of marquee investors.  The allotment of the same was completed on 21^st November 2024 just after NCLT approval received.
• OneSource issued its equity shares as consideration to the proposed demerger thereafter and the same got listed on nationwide bourses in the month of January 2025.
• Thus, OneSource completed its QIP before listing the equity shares.  

Conclusion

This informal guidance will impact the complex restructurings which involves creation of a listed company through the consolidation of listed & private companies, followed by an immediate fund raise. To navigate this, Onesource did QIP between small window available i.e. between NCLT approval and listing of shares. One interesting fact is SEBI issued its informal guidance on 29th November 2024, while Onesource completed QIP on 21^st November 2024. One may need to ponder on regulatory/tax/valuation deviations involved in doing QIP before listing vis-à-vis immediately after listing from investors point.