SEBI eases Delisting norms, clears framework for gold, social stock exchanges

Ashish M. Shaji

06 Oct, 2021

The Securities and Exchange Board of India recently simplified the delisting norms, which is expected to boost merger and acquisition in the country. Further, SEBI also cleared the framework to implement social stock exchanges and gold spot exchanges. The SEBI tightened norms on related party transactions to prevent their abuse. Additionally, the rules on issuance of shares with superior voting rights were eased. It will allow the founders of unlisted technology companies freedom to retain control of their firms by enhancing capital.

Key changes announced by SEBI: Delisting norms, gold, social stock exchanges etc.

The key changes announced by SEBI are as follows:

• Those Promoters having a net worth of more than 1,000 crore rupees can now have superior voting rights in their companies;
• There would be more checks and balances on related-party transactions;
• Framework for ‘gold spot’ and ‘social stock’ exchanges has been approved;
• Mutual funds allowed to launch silver Exchange Traded Funds^[1];
•  Charter with rights & responsibilities of investors is cleared for launch.

Change in delisting norms

The Capital market regulator permitted the acquirer to launch open offer, and delisting bid simultaneously, which was a long pending industry demand. As per experts, change in delisting rules removes the lacuna in the present framework. As per the present rule, an entity acquiring control in a listed company must make an open offer to buy 26% stake from public shareholders. After the open offer, in case where the promoter shareholding increases beyond 75%, the acquirer must bring it down to below 75% mark before attempting a delisting bid, which again requires from the acquirer to enhance its stake to 90%.

The framework that permits simultaneous open offer and delisting bid comprises of several checks and balances. It ensures that the rights of public shareholders are safeguarded.

The SEBI in a release stated that in case where the response to an open offer leads to delisting threshold of 90% being met, then all shareholders tendering their shares will be paid the same delisting price and if the response to the offer leads to delisting threshold of 90% not being met then shareholders that tender their shares will be paid the same takeover price.

Related Party Transactions norms get tightened

SEBI has tightened the definition relating to what will qualify as related party transactions and has extended it to those transactions with shareholders holding 10% or more in the company. Related party transactions have been misused by various entities in different ways, including siphoning of funds therefore, the framework has been tightened, and minority shareholders safeguarded.

Superior voting rights

In 2019, SEBI issued a framework for issuance of superior voting rights share, but many companies were unable to make most of it as it was considered to be too restrictive. Such shares could be issued only by those individuals who were a part of promoter group with a net worth of below 500 crore rupees, but now the threshold has been enhanced to 1000 crore rupees.

Moreover, the minimum gap among the issuance of such shares and filing IPO documents has been reduced to 3 months from the earlier requirement of 6 months.

Framework for gold spot and social stock exchanges

The capital market regulator cleared the framework to implement social stock exchanges and gold spot exchanges. The gold traded on the proposed exchanges shall be called electronic gold receipt. Further, SEBI specified that trading, clearing, and settlement would be identical to other securities which are presently traded on exchanges.

A social stock exchange would be a separate segment of existing exchanges. For-profit, as well as not-for-profit entities, would be permitted to raise capital on this platform for social cause. Moreover, silver will be the second commodity after gold which investors can buy through the mutual fund route as exchange traded funds.

Conclusion

The Securities and Exchange Board of India made some key decisions by detailing a framework for spot gold trading, tightened norms for related party transactions and eased rules for issuance of shares with superior voting rights and delisting norms.

Read our article:SEBI tweaks delisting guidelines to make process transparent and efficient