Newest SEBI's Regulations on Indian Mergers and Acquisitions


New SEBI regulations on Indian Companies Mergers and acquisitions 

In February 2017, in order to protect the interests of public shareholders, the Securities and Exchange Commission of India (SEBI) approved a number of proposals to modify and streamline the merger and merger rules of listed and unlisted entities. Such new regulations of SEBI will target some large-scale Of non-listed companies hope to achieve the goal of going public through reverse merger of a small listed company. 

In addition, SEBI has also raised the disclosure standards. Non-listed companies that merge with listed companies must meet the requirements for disclosure of materials and information.



Companies Mergers and Acquisitions

SEBI, as the security regulator in India and the protector of the interests of public shareholders, has been paying attention to the risks associated with the governance of certain corporate mergers and acquisitions. In order to achieve the above objectives, SEBI revised the company’s listing-related agreements, requiring the stock exchange to pre-approve all mergers and acquisitions plans of listed companies and formulating strict guidelines for listed companies. 

At the board meeting held in February 2017, SEBI has revised the existing management framework of the merger and spin-off plan. At the same time, it also stated that in order to streamline and strengthen regulations, mergers and acquisitions of listed companies can only be classified as listed companies when they are listed on stock exchanges with national trading terminals.



After further testing and analysis of the latest trends and arrangements proposed by listed companies, SEBI has now approved the arrangements for approval of listed and non-listed entities mergers and mergers. According to the revised specifications, SEBI stated that the purpose of modifying such regulations is to "expand the proportion of public shareholding and prevent non-listed companies from adopting reverse mergers—namely, backdoor listings."



Proposed outstanding features



Involve more public shareholders

a. The shareholding ratio of expected shareholders of listed companies and qualified institutional buyers of non-listed companies shall not be less than 25% of the combined listed company.


b. The following plans need to be approved by public shareholders, and need to be voted through the electronic voting mechanism:


1) The merger plan/plan of the unlisted company will reduce the proportion of the total assets of the merged company by more than 5%, which requires public shareholders to vote;


2) The consideration for transferring all or substantially all of the business of a listed company in a form other than the listed equity;


3) The unlisted subsidiary is merged with the listed holding company, and the shares of the unlisted subsidiary are acquired by the holding company from the promoter/sponsor group.



Tighter disclosure standards



a. Non-listed companies must compulsorily disclose all important information in the form of a brief prospectus before merging with a listed company.


b. Issuing shares to a larger audience. In order to ensure that all types of shareholders receive fair treatment in such plans, listed companies must strictly follow the "ethical and law-abiding" pricing methods.


c. The wholly-owned subsidiary (WOS) merges with its parent company. SEBI also believes that it is necessary to relax certain procedures concerning the arrangement of the merger between WOS and its parent company. This scheme does not require submission or pre-approval from SEBI. These plans will need to be submitted directly to the stock exchange for the limited purpose of disclosure.



Other key recommendations

a. Non-listed companies can only merge with listed companies if they are listed on a stock exchange with a national trading terminal.


b. The company needs to submit a compliance report to confirm compliance with the SEBI circular, and the accounting standards need to be certified by the company secretary, chief financial officer, and managing director.



Recent reports in the press indicate that SEBI has effectively avoided listing obligations and disclosed an alarming number of large non-listed companies through mergers with small listed companies. In order to alleviate concerns, the SEBI Board of Directors has approved these recommendations to ensure greater public participation and review of these plans, thereby protecting the interests of public shareholders.



Generally speaking, these recommendations will increase the compliance burden of listed companies merging with non-listed companies. However, certain suggestions, such as the nature of important information that non-listed companies need to disclose in a simplified prospectus, will require SEBI to be more clarified. This is because at present, non-listed companies need to provide an information memorandum in order to obtain approval for the listing of their shares. But the exact distinction needs to be refined by SEBI. 

Of course, in this new regulation, SEBI is likely to over-regulate all types of mergers.



In addition, in accordance with Article 233 of the Indian Companies Act 2013, the SEBI board of directors agreed to amend the “approval requirements” to only “disclosure specifications” for wholly-owned subsidiaries (WOS) that quickly merged with their parent companies. This distribution will reduce any ambiguity in sections 230 and 233 of the 2013 Act.



Although SEBI’s regulatory intent may be clear, there has not been any formal amendment to the relevant SEBI regulations and therefore does not have legal effect. The specific rules will be promulgated from July to September 2017. At that time, the revised regulations need to be further analyzed to understand the extent to which SEBI's intentions are reflected.

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