The document discusses various types of corporate restructuring like mergers, demergers, and reduction of capital. It outlines the key requirements and processes according to Indian law. For mergers and demergers, stock exchange approval is needed and they have listing agreement compliances and norms regarding minimum capital, lock-ins, and non-promoter shareholding. Demergers can provide benefits like separating unrelated businesses and providing better valuation to shareholders. Reduction of capital can help write off losses and correct over-capitalization.

1. CORPORATE RESTRUCTURING - Role of Stock Exchanges Pavan Kumar Vijay

2. TYPES OF RESTRUCTURING REDUCTION OF CAPITAL MERGER DEMERGER

3. MERGER “ Combining of two or more commercial organizations into one in order to increase efficiency and sometimes to avoid competition ”. MERGER REVERSE MERGER “ As a commercial term, it means when a Healthy Company (in terms of size, capital or listed company)is merging in a Weak Company (in terms of size, or unlisted)”. SECTION 391-394 of Companies Act, 1956

4. DEMERGER “ Separation of a large Company into two or more smaller organisation” SECTION – 2(19AA) of Income Tax Act, 1961.

5. “ Extinguishing or Reducing the liability of members to the extent it is in excess of the needs of the Company” REDUCTION OF CAPITAL SECTION – 100 – 105 of Companies Act, 1956 SECTION 100 to 105 of Companies Act, 1956

6. TYPES OF MERGER Unlisted with Listed Listed with Unlisted Merger with Holding Company Merger with Group Company Healthy Company with Weak Company

7. STOCK EXCHANGE’S ROLE REQUIREMENTS PERSPECTIVE Listing Agreement Compliances Stock Exchange Norms Observations Compliance of Other laws

8. Listing Agreement Compliances “ The Company agrees that it shall file any scheme/petition proposed to be filed before any Court 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)

9. Clause 24(a) “ The Company agrees to obtain ‘in-principle’ approval for listing from the exchanges having nationwide trading terminals where it is listed, before issuing further shares or securities .” Listing Agreement Compliances.. contd

10. Clause 40A Listing Agreement Compliances..contd “ The Company should pursuant to merger & demerger should comply with Continuous Listing requirements.”

11. Stock Exchange’s Norms Presently, Stock Exchange(s) are laying various other norms before giving approval to the Companies for ‘ Merger ’, ‘ Demerger ’ ‘ Reduction of Capital ’

12. Stock Exchange Norms..contd MINIMUM CAPITAL REQUIREMENTS 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 Minimum Net Worth – 20 crores (Post amalgamation) *BSE Stipulations

13. 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 – is less than 25% of Post merger capital, then the company has to go for offer for sale of the excess portion. *BSE Stipulations Stock Exchange Norms..contd

14. Stock Exchange Norms..contd LOCK IN REQUIRMENTS “ 25% of the newly issued capital pursuant to the scheme of 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 on case to case basis” *BSE Stipulations

15. Compliance of Other Laws “ The Stock Exchange(s) alongside considers the compliance of other laws, regulations, rules etc applicable on the Company ”

16. 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 including amalgamation or merger or demerger under any law or regulation, Indian or foreign;”

17. O Valuations Analysis No undue benefit to Promoters/Particular group Investors interest not to be affected Back door Entry for the benefit of listing Change in Management/Control BSERVATIONS Stock Exchange’s Views

18. I SSUES

19. 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

20. 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

21. What are the repercussions in case the promoter’s shareholding goes beyond 75% of the post amalgamation capital? Whether a Suspended Company is eligible to obtain in principle approval from stock exchange? ISSUES

22. Whether Shares placed to QIB's in an Unlisted Company prior to merger will be counted in the post merger non -promoter shareholding of a Listed Company? ISSUES

23. DEMERGER Global Fuel Management Ltd Reliance Capital Ventures Ltd

24. Listed Company demerging into two listed companies. Listed Company is demerged into two companies and another unlisted entity is merging with the one of the demerged entity. TYPES OF DEMERGER

25. AVAILABILITY OF EXEMPTION Listed Company merging with Unlisted Company. In case of a demerger of a Listed Company,the Resultant Company to get the benefit of listing. Exemption u/c 8.3.5.1

26. CONDITIONS FOR AVAILING EXEMPTION 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, and such scheme has been sanctioned by the High Court/s of Judicature. The listing of the shares of the unlisted transferee-company is in terms of scheme of arrangement sanctioned by the High Court/s of the Judicature. At least 25% of the paid-up share capital , post scheme, of the unlisted transferee-company seeking listing comprises shares allotted to the public holders of shares in the listed transferor-Company. Exemption u/c 8.3.5.1

27. Exemption u/c 8.3.5.1 The unlisted company has not issued/reissued any shares, not covered under the scheme. There are no outstanding warrants /instruments/ agreements which gives to any person to take the shares in the unlisted transferee company at any future date. The share certificates have been dispatched to the allottees pursuant to the scheme of arrangement or their names have been entered as beneficial owner in the records of the depositories. That the shares of the transferee-company issued in lieu of the locked-in-shares of the transferor-company are subjected to the lock-in for the remaining period.

28. Promoters’ shares shall be locked-in to the extent of 20% of the post merger paid-up capital of the unlisted company, for a period of 3 years from the date of listing of the shares 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. The Company shall give an advertisement in one English and one Hindi newspaper with nationwide circulation and one regional newspaper with wide circulation at the place where the registered office of the company is situated, giving details as specified in Schedule XXVIII. Exemption u/c 8.3.5.1

29. ISSUES

30. Whether Demerger & Merger are possible in one scheme? ISSUES

31. One of the pre - condition of Inter-se transfer is transferor & transferee should be holding shares 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 are holding shares since last 3 years in the demerged company? ISSUES

32. Case Studies

33. Morarjee Goculdas Spg. & Wvg. Co. Ltd. (MGM) -Demerger Scheme- FACTS MGM was engaged in two separate business: Real Estate Development Manufacturing of various kind of fibers & fabrics ii. The two businesses were quit distinct it was desired to segregate the two.

34. Salient Features of the Scheme Before merger MGM transferred its complete Textiles business to MTL in lieu of which MTL allotted shares to a SPV, MGM Shareholders Trust. MGM changed its name as Morarji Realty Ltd. (MRL) . The investment by MGM (Now MRL) in MTL was distributed among the shareholders of MGM in the ratio of 10:21. . The equity shares in MTL held by MGM Shareholders Trust was also distributed among the shareholders in the ratio of 1:25 free of cost . The Preference shares held by MGM Shareholders Trust were also offered to the shareholders at a discounted price. . The new shares received by the shareholders of MGM (MRL)were listed on BSE & NSE under the provisions of Clause 8.5.3.1 of SEBI (DIP)Guidelines in exemption of Rule 19 (2) (b) of SCRR. Through the same scheme MTL reduced its share capital by 80% to wipe-out the past losses and hence cleaned up its balance sheet.

35. Benefits to Company Two unrelated businesses were separated to make it possible to determine the Industry of the Company. It is desirable to attract Industry specific investors. The shareholders received shares to two listed entities with separate business profile, thus, providing better valuation & liquidity. There was no tax implication in the hands of the companies involved or the shareholders. It also helped MTL to wipe out past losses, making the balance sheet clean and attractive. No loss of carry forward of past losses.

36. Benefit to Shareholder 11,120 Net benefit (B-A) 16,620 Total (B) 4,120 51.5 shares @ Rs 80 Shares in MTL 12,500 100 shares @ Rs125 Shares in MRL Shareholder's value on allotment & Listing of shares of MTL (as on 24th March 2005 ) 5500 100 shares @Rs 55 Value of the shares held by a shareholder as on record date (5 th Jan,2004) (A) Amount (Rs.) Particulars

37. Benefit to Shareholder- Current Worth 99,907 Total 5,407 51.5 shares @ Rs 105 Shares in MTL 94500 100 shares @Rs 945 Shares in MRL Current Worth (as on 25 th May 2006)

38. REDUCTION OF CAPITAL

39. Types of Reduction of Capital Writing off Losses & Assets Correction of Over- Capitalization Distinguishment of the Liability in respect of unpaid portion of face value. Distribution of accumulated profits by Payment to shareholders a part of share capital.

40. Reduction of Capital- A Strategic Step Use to Clean the Balance Sheet To rationalize the capital base Revival of Sick Company

41. RESTRUCTURING STRATEGIES What's Your Move??

42. FEW STRATEGIC MOVES LISTING CONSOLIDATION OF RESOURCES INCREASING PROMOTERS’ HOLDING

43. LISTING OBJECTIVES In today’s scenario, restructuring results into unlocking of shareholders’ value. Key strategy for achieving liquidity. Strategy I

44. Strategy I Unlisted Co. Merging with Listed Co. Benefit for the shareholders of the unlisted company as they will get the shares of a listed Company. Example: Reliance Infocomm is in the process of merging with Reliance Communication Ventures Ltd.

45. Merger