M&A Critique
M&A Happenings: March 2015

Sebi May Tweak Listing Norms For Start-ups

Securities and Exchange Board of India (Sebi) is all set to introduce new guidelines for technology-related start-up companies. Sources say Sebi is likely to consider increasing the portion of the issue size allocated to qualified institutional buyers (QIBs) and reduce the minimum number of non- institutional investors (NIIs) as it readies contours of the final guidelines.

In a discussion paper, which was released in March, Sebi had proposed relaxing listing norms for new age start-up firms by setting up an alternate capital-raising platform through a separate institutional trading platform (ITP) that would have allocation to two categories of investors, comprising QIBs and NIIs, in the ratio of 75% and 25%, respectively.

The market regulator had proposed to cap QIB allotments to 5% of the issue size. Sources say it may tweak this provision in its final guidelines by increasing the limit to 10%. This is expected to attract long-term capital and encourage larger QIBs.

Moreover, Sebi is likely to evaluate a reduction in NIIs from 500 to 300 allotteess, since a high- spread requirement may fragment holdings, making investments lose sheen for QIBs.

Sebi is also expected to clarify the term promoters as founders of the start-up and not venture capital and private equity firms that may have invested in such companies. It is likely to announce the final guidelines by the end of June.

To provide easier exit options to angel investors and venture capital funds, Sebi had proposed to allow listing of SMEs in ITP without having to make an IPO.

Sebi has observed in its discussion paper that many start-ups do not incur profits in the initial years, but have the potential for rapid growth. Yet the lack of better price discovery mechanisms in India, compelled many entrepreneurs to consider listing in international markets like Singapore and the US, instead of domestic exchanges.

“It is a global phenomenon that many of them are getting acquired by large companies at high valuations. Innovators are, therefore, looking for an environment where their inner strength and potential is fairly recognised,” Sebi said in its discussion paper.

It has proposed that a new platform for raising money within the country will initially be made available to companies that are in the areas of software product development and e-commerce.

(Source: http://www.financialexpress.com)

With new Companies act, company secretaries can now act as whistleblowers 

With the new Companies Act in place, company secretaries (CS) like other statutory auditors can now act as whistleblowers if they detect any fraud.

“There is a provision of a whistle blower in the new Companies Act. It is now mandated in the act of 2013,” Institute of Company Secretaries of India (ICSI) President Atul Mehta said.

Practicing company secretaries, he added, will be mandatorily required to carry out the secretarial audit of companies whose paid up capital is more than Rs 50 crore and a turnover exceeding Rs 250 crore.

This was akin to the kind of audit carried out by statutory auditors for financial audit and cost accountants for cost audit for listed companies, he told reporters here today. Mehta said that if any fraud was detected by the practicing CS, it will have to be reported either to the audit committee or the Corporate Affairs Ministry, depending on the quantum of the money involved.

“The new Act has made this mandatory,” Mehta said adding that the secretarial auditor will also have to attach his report, along with the board of directors statement in the annual report.

The secretarial auditor will be allowed to make any qualifying remarks in the report like the statutory auditor.

The corporates will have to follow the secretarial standards and need to comply by July 1, 2015.

Meanwhile, ICSI is setting up a center of excellence for corporate governance in the city.

(Source: http://economictimes.indiatimes.com)

SEBI prescribes norms on pricing for debt-equity conversion under debt restructuring scheme;amends ICDR norms




In exercise of the powers conferred by section 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following regulations to further amend the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, namely:—

1. These regulations may be called the SEBI (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2015.

2. They shall come into force on the date of their publication in the Official Gazette.

3. In the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009,    in regulation 70, after sub-regulation (4), the following shall be inserted, namely.—

“(5) Conversion of debt into equity under strategic debt restructuring scheme –

The provisions of this Chapter shall not apply where the preferential issue of equity shares is made to the consortium of banks and financial institutions pursuant to conversion of their debt, as part of the strategic debt restructuring scheme in accordance with the guidelines specified by the Reserve Bank of India, subject to the following conditions:

a) Conversion price shall be determined in accordance with the guidelines specified by the Reserve Bank of India for strategic debt restructuring scheme, which shall not be less than the face value of the equity shares;

b) conversion price shall be certified by two independent qualified valuers, and for this purpose ‘valuer’ shall have the same meaning as assigned to it under clause (r) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Issue of Sweat Equity) Regulations, 2002;

c) equity shares so allotted shall be locked in for a period of one year from the date of trading approval:

Provided that for the purposes of transferring the control, the consortium of banks and financial institutions may transfer their shareholding to an entity before completion of the lock-in period subject to continuation of the lock-in on such shares for the remaining period with the transferee;

d) Applicable provisions of Companies Act, 2013 are complied with, including the requirement of a special resolution.

(6) The provisions of this Chapter shall not apply when any other secured lenders opt to join the strategic debt restructuring scheme in accordance with the guidelines specified by the Reserve Bank of India and convert their debt into equity share in accordance with sub-regulation (5). “

(Source: http://corporatelaws.taxmann.com)


M & A Critique