Sebi eases delisting for listed subsidiaries, grants exemption from RBB

Move will help simplify restructuring process for large groups

The Securities and Exchange Board of India (Sebi) on Tuesday made it easier for a listed holding company to delist its subsidiary by granting exemption from the reverse book building (RBB) process.

The regulator said as long as the holding company and the listed subsidiary are in the same line of business and delisting is overwhelmingly approved by shareholders, the listed subsidiary will be allowed to turn into a wholly-owned subsidiary of the listed parent. The delisting process prescribed by Sebi is similar to the merger process, however, in this case, the listed entity will continue to exist as a subsidiary and won’t be subsumed into the parent.

This route may prove to be more beneficial in cases where there are constraints with a full merger because of factors, such as licensing conditions, cultural differences, and involvement of huge transfer costs or stamp duties.

“This amendment will ease the process for groups undertaking a restructuring involving listed companies,” Moin Ladha, partner, Khaitan & Co.

While Sebi has done away with the need for RBB — considered to be a costly affair — it has put in place several safeguards to protect minority investors’ interests. “The concerns of shareholders are well taken care of since they will acquire a stake in the listed holding company and hence, this exemption from following the complete delisting process has merit,” said Vishal Yaduvanshi, Partner, IndusLaw.

Separately, the Sebi board also tweaked the norms to empower debenture trustees (DTs), who act as a vital link between debenture issuer and the investor.

Sebi has said DT will be allowed to convene a meeting of debenture holders for enforcement of security or for joining the inter-creditor agreement (ICA). Also, DTs will carry out monitoring of the asset cover and create a recovery expense fund, which will come into use in an event of a default. Experts said the changes will give more teeth to DTs, who were found having little power in some of the recent corporate defaults.

Sebi also has approved an amendment to the mutual fund regulations to introduce a code of conduct for fund managers which will include chief investment officers (CIOs), as well as dealers. The regulator said chief executive officer will be responsible to ensure the code of conduct is followed by all such officers. The move will help prevent front-running and information leakage, said industry players.

Further, Sebi has directed listed companies to intimate their shareholders wherever an entity undertakes a forensic audit with reasons for the same. The regulator also said the final forensic audit report, along with management comments, will have to be disclosed to stock exchanges. In case the forensic audit is initiated by regulatory or enforcement agencies, the above provision won't be applicable.

Experts said this move will increase transparency and help investors take informed decisions.

Sebi also tweaked the “informant mechanism” under the insider-trading regulations. The regulator has provided up to 3 years for reporting violations under the insider trading laws through the informant mechanism.

The Sebi board also eased the alternative investment funds (AIF) regulation by tweaking the definition of "relevant professional qualification" by allowing it to be fulfilled by either an individual or collectively by personnel of an investment team.