M&A Critique
M&A Happenings: March 2015

Sebi to Act Against Companies With No Woman Director

Market regulator Sebi will take ‘necessary’ action against listed firms which fail to appoint at least one woman director on their Boards by the end of this month, Parliament was informed today.

The capital markets watchdog had issued guidelines in February last year asking companies to appoint at least one woman director on their boards by October 1, 2014 which was later relaxed to April 1, 2015.

“Sebi will take necessary action when the compliance position by companies is known after March 31, 2015,” Minister of State for Finance, Jayant Sinha said in a written reply to Rajya Sabha.

According to an estimate, nearly one-third of the top500 listed companies do not have any female representation on their respective Boards.

With just a fortnight left to meet the deadline, Sebi has written to more than 160 such companies to ensure compliance.

After Sebi’s direction in February last year, many companies had stepped up efforts to have women directors on their Boards and nearly 500 female members were nominated to the Boards till December 2014, although many of them happen to be family members of the promoters.

Still, a large number of companies are yet to comply.

The norms were finalised by the regulator after detailed discussions were held between Sebi and concerned stakeholders for over a year and involve stronger regulations for listed companies than those prescribed under the Companies Act for non-listed entities.

These include clarifications on rules relating to the appointment and qualification of directors as well as independent directors, matters relating to related party transactions, and rules governing meetings of Board and its powers.


Government eases compliance norms under companies law

Seeking to further ease compliance requirements for corporates, the government has amended certain rules pertaining to e-voting, powers of the board, and debenture issues.

The Corporate Affairs Ministry has made new amendments to rules under the Companies Act, 2013 whose most provisions came into force on April 1 last year.

“The amendments are very much in line with the government’s focus on ease of doing business,” Sai Venkateshwaran who is Partner and Head of Accounting Advisory Services at KPMG in India said.

With the amended norms, the results of the evoting would not be announced till the entire voting process, including physical voting at the general meeting is completed.

The move has streamlined the process of evoting and voting through the ballot and other means at the general meeting. With regard to evoting, changes have been made in the Management and Administration rules.

Besides, the Ministry has now provided flexibility to companies in obtaining their boards’ approvals.

Certain matters that were previously required to be resolved only a meeting of the board can now be decided by means of a resolution through circulation as well.

Relaxations have been made with respect to various matters including approval of quarterly, half yearly and annual financial statements, buying and selling investments exceeding certain limits, inviting, accepting, renewing or amending terms of public deposits.

Relevant changes have been effected in rules related to Meetings of Board and its Powers.

“These amendments are quite welcome and provide flexibility to companies to carry on routine decision-making at the board level without having to call for a board meeting,” Venkateshwaran said.

The Ministry has also simplified the procedural and compliance requirements under Share Capital and Debentures rules.

Now these rules would not be applicable on commercial paper as well as Foreign Currency Convertible Bonds or Foreign Currency Bonds issued in accordance with the relevant RBI guidelines.

“These amendments also now permit that where a loan has been taken by a subsidiary company from any bank or financial institution, the charge or mortgage may also be created on the properties or assets of the holding company,” Venkateshwaran said.

For the amendments, the Ministry has issued three separate notifications on March 18 and 19.

According to him, these changes are very welcome and would reduce some of the cumbersome compliance requirements and also streamline processes in other areas.


SEBI planning to ease IPO norms to lure homegrown startups

India’s market regulator is planning rule changes that will make it easier for homegrown startups to list their shares on local bourses, sources involved in the process said, helping domestic investors to bet on the country’s booming online economy.

While many of India’s largest online players are set to list in the coming year or two as they mature, none is currently expected to make its market debut at home. That could mean a significant loss for local exchanges and investors: marketplace Flipkart has prompted valuations of as high as $11 billion.

To remedy this, sources said, the Securities and Exchange Board of India (SEBI) is considering easing rules on mandatory disclosure for the draft prospectuses of Internet based firms.

One of the main items that could be scrapped is the need to detail the use of proceeds from the initial public offering of shares, they said. This is an obstacle particularly for technology startups, that don’t usually use the cash to invest in plants, factories or mines.

“A lot of them operate without any tangible assets,” said one of the sources directly involved in the process.

“That creates an issue when declaring the use of proceeds (in the draft prospectus).”

The source said other issues including accounting and financial reporting practices used by the e-commerce firms were also under review to ease preIPO disclosure requirements.

An official at SEBI said separately that the regulator’s chairman, U.K. Sinha, has held meetings with startup executives and bankers to discuss the proposed changes.

All the sources declined to be named, as they were not authorised to speak to the media given the new rules are still being finalised. A spokesman for SEBI did not respond to Reuters calls and email requesting comment.

India is seeing a boom in private investments in startups and a large number of funds including

Temasek Holdings, U.S.based Accel Partners and Japan’s SoftBank Corp have invested billions of dollars in online firms.

Most of these private equity investors are expected to exit from their portfolio companies through share listings, putting a spotlight on the sector and the potential IPO candidates.

Many Indian startups including online marketplaces Flipkart and Snapdeal are expected to be preparing for IPOs, hoping to raise capital and to give some of their early backers an opportunity to cash in on investments worth billions of dollars.

But bankers are expecting them to explore overseas markets, mainly U.S. exchange operator NASDAQ OMX Group Inc.

That is due to regulatory requirements in India as well as the difficulty in finding valuation benchmarks on exchanges on which no comparable rivals trade.

Investment bankers said the SEBI rule changes, if implemented, may encourage some of these companies to consider a listing at home, giving Indian investors the chance to put money into a sector that is expected to boom in the next few years as more Indians shop, live and work online.



M & A Critique