CS.CHANDRA AGARWAL

8/8/2019 CS.CHANDRA AGARWAL

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CORPORATE

RESTRUCTURINGRegulatory framework for Listed Companies&Strategies

CORPORATE

RESTRUCTURINGRegulatory framework for Listed Companies&Strategies

CS CHANDRA AGARWAL

PGDM FIN CS


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GOVERNING PROVISION

SECTION 391-394 of Companies Act, 1956

Most liberal sections in the entire

Companies Act, 1956.

By way of SCHEME you can

propose & achieve whatever you want


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TYPES OF RESTRUCTURING

REDUCTION

OF CAPITAL

MERGER

MERGER

DEMERGER


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RESTRUCTURING

BIFRHigh Court

Approving Authorities

Approving Authorities


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MERGER

Combining of two ormore commercialorganizations into one inorder to increaseefficiency and sometimesto avoid competition.

MERGER

REVERSE MERGER

As a commercial term, itmeans when a HealthyCompany (in terms of size,capital or listing status)is

merging in a Weak Company(in terms of size, or

unlisted).

SECTION 391-394 of Com anies Act, 1956


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DEMERGER

Division of a Company with two or moreidentifiable business units into two or more

separate companies

SECTION 2(19AA) of Income Tax Act, 1961.


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Extinguishing or Reducing the paid-upcapital, Securities Premium Account or

liability of members with respect totheir unpaid calls

-AN EFFECTIVE WAY OF INTERNALRESTRUCTURING

REDUCTION OF CAPITAL

SECTION 100 105 of Companies Act, 1956SECTION 100 to 105 of Com anies Act, 1956


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A FEW VARIETY OF MERGER

Unlisted with Listed

Listed with Unlisted

Merger of Subsidiary with Holding Company

Merger with Group Company

Healthy Company with Weak Company

Merger through BIFR


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STOCK EXCHANGES ROLE

REQUIREMENTS

PERSPECTIVE

Listing Agreement Compliances

Stock Exchange Internal Norms

Observations

Compliance of Securities laws

Compliance of Companies Act


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Listing Agreement Compliances

The Company agrees that it shall file any

scheme/petition proposed to be filed before anyCourt or Tribunal under Sections 391, 394 and 101

of the Companies Act, 1956, with the stock

exchange, for approval, at least a month before it

is presented to the Court or Tribunal.

Clause 24(f)


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Clause 24(a)

Company to obtain in-principle approval forlisting from the exchanges having nationwide

trading terminals where it is listed, before

issuing shares or other securities to the

shareholders of Transferor Company.

Listing Agreement Compliances.. contd


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Clause 40A

Listing Agreement Compliances..contd

Company to comply with Continuous Listingrequirements while framing a scheme of

merger/demerger.


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Stock Exchanges Norms

Presently, Stock Exchange(s) are laying various other

norms before giving approval to the Companies

for

Merger, Demerger Reduction of Capital


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Stock Exchange Norms..contd

MINIMUM CAPITAL REQUIREMENTS

1. Issued & paid up Equity Capital Rs 10 crores

(if there is a change in management/control)

OR

Issued & paid up Equity Capital Rs 3 crores

(If there is no change in management/control)

AND

2. Minimum Net Worth 20 crores

(Post amalgamation)

*BSE Stipulations


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CONTINUOUS LISTING NORMS

(Transferee Co is Listed Co. & Transferor Co is Unlisted Co.)

Non- Promoter Holding 25% of Post -merger Capital

* (The entire holding of the shareholders of the transferor company be

excluded)

If Non- Promoter Holding Falls below 25% of Postmerger capital, then the Promoters have to dilute

excess portion.

*BSE Stipulations



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LOCK IN REQUIRMENTS

25% of the newly issued capital pursuant to the schemeof amalgamation should be kept under lock in for 3 yrs

from the date of listing

The lock in period are varied by the stock exchange oncase to case basis

*BSE Stipulations


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Compliance of Other Laws

The Stock Exchange(s) alongside considersthe compliance of Securities laws,

regulations, rules etc. applicable on theCompany and Companies Act also


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Compliance of Other laws..contd

SEBI (SAST)REGULATIONS ,1997

Regulation 3(1)(j)(ii) provides an exemption for acquisition

of shares:Nothing contained in regulations 10, 11 and 12 of these

regulations shall apply to shares acquired

Pursuant to a scheme :

(ii) of arrangement or reconstruction includingamalgamation or merger or demerger under any law orregulation, Indian or foreign;


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Valuations Analysis

No undue benefit to Promoters /

Particular group

Investors interest not to be affected

Back door Entry for listing

Change in Management/Control


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Whether application under Clause 24(f) of

the Listing Agreements is an approval or

information?

Whether no communication from Stock

Exchange within 1 month amounts to

approval?

ISSUES


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Whether Merger without approval under

Clause 24(f) of the Listing Agreement is valid

considering that the High Court approved the

same?

Whether varied lock in period stipulations

imposed by Stock exchange are valid?

ISSUES


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What are the repercussions in case the

promoters shareholding goes beyond 75% of

the post amalgamation capital?

Whether a Suspended Company is eligible to

obtain in principle approval from stock

exchange?

ISSUES


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Whether Shares placed to QIB's in an

Unlisted Company prior to merger will becounted in the post merger non -promoter

shareholding of a Listed Company?

ISSUES


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MERGER THROUGH BIFRMERGER THROUGH BIFR

AN EFFECTIVE

WAY

TO

REVIVE

YOUR

SICK COMPANY


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EXEMPTION FROM TAKEOVER CODE

Regulation 3(1)(j) of SAST Regulations, 1997 provides that:

Nothing contained in Regulation 10, 11 & 12 shall applies to acquisition:

j) Pursuant to a scheme :

(i) framed under section 18 of the Sick Industrial Companies (Special

Provisions) Act, 1985 (1 of 1986);

ja) Exemption to restructuring under Securitization law

(Change in mgt by the secured creditors)


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EXEMPTION FROM CL40A OF LISTING AGREEMENT

Clause 40A as amended on 13th April, 2006 givesexemption to BIFR referred companies:

The Non-Promoters shareholding can be below 25% of thetotal capital of the company pursuant to BIFR Order in

any rehabilitation scheme.


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DEMERGERDEMERGER

Reliance Natural

Resources Ltd

Reliance Capital

Ventures Ltd


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TYPES OF DEMERGER

Listed Company demerging into two

companies (both could be listed).

Listed Company is demerged into two

companies and another unlisted entity is

merging with the one of the demerged entity.

Distribution of shareholding in a Wholly

owned Subsidiary among shareholders


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1. At least 10 per cent of securities issued by a company was

offered to the public through advertisement & following

conditions were fulfilled:

(a) minimum 20 lakh securities was offered to the public;

(b) the size of the offer to the public Rs. 100 crores ;

and

(c) the issue was made only through book building withallocation of 60 % of the issue size to QIBs

Or

2. It shall offer at least 25 % of each class to the public

through Advertisement & Shares applied in

pursuance of such offer were allotted

CONDITION FORLISTING

(Rule 19 (2) (b) ofSCRRules)


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EXEMPTION FROM CONDITION OF

RULE19 (2) (b)

Listed Company merging with Unlisted

Company.

Demerger of a Listed Company, the

Resultant Company to get the benefit of

listing.

LISTINGUNDER CL. 8.3.5.1 OF

SEBI (DIP) GUIDELINES


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CONDITIONS FOR AVAILINGEXEMPTION

Shares have been allotted by the unlisted company (transferee-

company) to the holders of securities of a listed company(transferor-company) pursuant to a scheme of reconstruction or

amalgamation under the provision of the Companies Act, 1956, andsuch scheme has been sanctioned by the High Court/s of Judicature.

At least 25% of the paid-up share capital, post scheme, of theunlisted transferee-company seeking listing comprises shares

allotted to the public holders of shares in the listed transferor-Company.

Listing under Cl. 8.3.5.1 ofDIPGuidelines

Cont.


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Listing under Cl. 8.3.5.1 ofDIPGuidelinesCont.

The unlisted company has not issued/reissued anyshares, not covered under the scheme.

There are no outstanding warrants /instruments/agreements which gives to any person to take theshares in the unlisted transferee company at anyfuture date.

That the shares of the transferee-company issued inlieu of the locked-in-shares of the transferor-companyare subjected to the lock-in for the remaining period.


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Promoters shares shall be locked-in to theextent of 20% of the post merger paid-upcapital of the unlisted company, for a period

of 3 years from the date of listing of theshares of the unlisted company.

The balance of the entire pre-merger capital

of the unlisted company shall also be locked-in for a period of 3 years from the date of listing of the shares of the unlisted company.

Listing under Cl. 8.3.5.1 ofDIPGuidelinesCont.


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Whether Demerger & Merger are possible in one

scheme?

One of the pre - condition of Inter-se transfer

is transferor & transferee should be holdingshares for three years. What is the status of

shares held in the Resultant Company? Whether

the three years condition will be deemed to be

fulfilled in case the transferee & transferor areholding shares since last 3 years in the

demerged company?

ISSUES


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Reliance Industries Limited

- A Unique Scheme of Arrangement-

FACTS

PRE ARRANGEMENT SCENARIO

Reliance Industries Limited was

engaged in various businesses:

(i) Coal based power business;

(ii) Gas based power business;

(iii) Financial services business;

(iv) Tele-Communication business


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The family arrangement aims at

Segregation between the two Ambani Brothers

Provision for Specified Investors was made:

Holdings of RIL and other companies in the controlof Mr. Mukesh Ambani were transferred to a whollyowned subsidiary, Reliance Industrial Investmentsand Holdings Limited (RIIHL) along with a Private

Trust (Petroleum Trust). RIIHL and Petroleum Trust were described as

Specified Investors which renounced their rightsin the scheme itself.

RIL demerger


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As a result of demerger the shareholders of RelianceIndustries Ltd. other than Specified Investors got oneshare each in the following four resulting companies foreach share held in RIL as on the record date:

Reliance Energy Venture Ltd. (REVL)

Reliance Communication Venture Ltd. (RCOVL)

Reliance Capital Venture Ltd. (RCVL)

Reliance Natural Resources Limited (RNRL)

The shares of all these resulting companies got listed onthe stock exchanges under the provisions of Cl 8.5.3.1of the SEBI (DIP) Guidelines.

RIL demerger


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Benefits achieved..

Particulars Amount

(Rs.)24th March 2006

Amount

(Rs.)20th December,

2007

Value of the shares held

by a shareholder as on

record date (25th

Jan,2006) (A)

100 shares @928

92800

Shares in RIL 100 (@708) 70800 (@2700) 270000

Shares in REL 100 (@38) 3800 (@1900) 90000

Shares in RCOL 100 (@290) 29000 (@706) 70600

Shares in RCL 100 (@24) 2400 (@2376) 237600

Shares in RNRL 100 (@23) 2300 (@163) 16300

Total 108300 684500

Net benefit155

005

762

00


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REDUCTION OF CAPITALREDUCTION OF CAPITAL


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Types of Reduction of CapitalTypes of Reduction of Capital

Writing off Losses & Fictitious Assets

Correction of Over- Capitalization

Distinguishment of the Liability in respect ofunpaid portion of face value.

Distribution of accumulated profits byPayment to shareholders a part of share

capital.


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Reduction of Capital- A Strategic StepReduction of Capital- A Strategic Step

To Clean-up the Balance Sheet

To rationalize the capital base

Revival of Sick Company


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RESTRUCTURING STRATEGIESRESTRUCTURING STRATEGIES

What'sYour

Move??


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Strategy I

LISTING(Without

offer to

Public)

FEW STRATEGIC MOVESFEW STRATEGIC MOVES

Strategy II

RAISINGPROMOTERS

HOLDING

(Beyond 55%)

FEW STRATEGIC MOVES tdFEW STRATEGIC MOVES td


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Strategy III

ACQUISITIONOF LISTED

CO.

(Exemption fromTakeover Code)

Strategy IV

INCREASEINGTHE

RESOURCES

(Without raisingCapital)

FEW STRATEGIC MOVES..contdFEW STRATEGIC MOVES..contd


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LISTINGLISTING

Direct listing is costly & complicated

But Listing of Company provides for..

Unlocking value of business

Brings liquidity

Attract investors for further growth

Strategy I


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Strategy IALISTING THROUGH MERGER

Small/loss making listed companies are selected byunlisted strong companies

Unlisted company is merged with listed company withmaximum possible shares to promoters of unlisted

Company

Promoters of Unlisted Company get shares in a listedentity


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Strategy IBLISTING THROUGH MERGER

Acquisition ofRegional ListedCompany(RSE)

Merger offinancially soundunlisted co with

listed co

Now your Companyis ready for Listing

INDONEXT LISTING

DIRECT LISTING


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Strategy IIRAISING PROMOTERS HOLDING

Revised provisions of SEBI Takeover Code does not allow

promoters to acquire even a single share beyond 55%

Specific exemption to Merger/Demerger

An Unlisted company is created by Promoters

This entity is merged with listed company

Promoters holding is raised up to 75%


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Strategy IIIACQUISITION OF LISTED COMPANY

SEBI Takeover Code does not allow acquisition of shares

of a listed company beyond 15% or Change in Control by

any outsider without a PA

Specific exemption to Merger/Demerger

An Unlisted company is created by Acquirer

This company is merged with listed company

Acquirers holding may go up to 75% of increasedcapital base

The Management may also change.


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Strategy IVINCREASING THE RESOURCES

Basic purpose of merger is to Synergy of Resources, but

the it also increases the capital base

High capital base make servicing of capital difficult

Proposed transferee company acquires shares intransferor company

Companies are merged

Crossholdings get cancelled

Resources got clubbed, capital base remain low.

Effectively , increases EPS.


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Restructuring offers tremendous opportunitiesfor companies to grow & add value to the

shareholders

It unlocks the true potential of the company

It is a Strategy for Growth & Expansion

It also helps in Cleaning up &create Synergy of Resources

To sum up


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Thanks a lot

Pavan Kumar Vijay

Documents

CS.CHANDRA AGARWAL