Sebi changes rules on 3rd party transactions, delisting and superior voting rights shares

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The capital markets regulator Securities and Exchange Board of India (Sebi) on Tuesday made several changes relating to delisting of shares, related party transactions andf on shares with superior voting rights.

It has decided to change the definition of Related Party and Related Party Transactions (RPTs), according to a statement issued by Sebi after the board meeting. It has also decided to make changes to the process followed by a company’s audit committee for approval of RPTs that are material and a format would be made to report such transactions to the stock exchanges.

It said any person or any entity, directly or indirectly holding 20% or more of the holding in the listed entity during the preceding fiscal and 10% or more with effect from April 1, 2023, should be considered as a related party.

The amendments will come into force with effect from April 1, 2022, unless otherwise specified above, Sebi said.

Delisting after open offer

The board also decided to amend rules on delisting of equity shares after an open offer as part of efforts to make merger and acquisition transactions more rational and convenient.

The new framework would be made available only in the case of open offers under the Takeover Regulations for an incoming acquirer that is seeking to acquire sole or joint control of the target company.  In case an acquirer is desirous of delisting the target company, the acquirer must propose a higher price for delisting with suitable premium over open offer price.

But to ensure compliance with Securities Contract (Regulation) Rules, the acquirer would be forced to first bring his  stake down to 75% before attempting the delisting.

Under the new rules, if the response to the open offer leads to the delisting threshold of 90% being met, all shareholders who tender their shares should be paid the same delisting price.

In case the response to the offer leads to the delisting threshold of 90% not being met, all shareholders who tender their shares should be paid the same takeover price.

Superior voting rights shares

In another decision, Sebi decided to relax the framework for the issue of shares with superior voting rights (SR shares), a move that will help new-age technology companies.

Sebi said said promoters who have a net worth of over Rs 1,000 crore can have superior voting rights in their companies, raising it from the current Rs 500 crore.

In addition, the minimum gap between issuance of SR shares and filing of ‘Red Herring Prospectus’ has been reduced to three months from the existing requirement of six months.

Market participants are of the view that certain aspects of current framework on SR shares are onerous which delays such issuer companies from raising funds from capital markets.