SEBI Issues Scheme Of Arrangement Guidelines For Entities With Listed Debt Securities

The Securities & Exchange Board of India (SEBI) released operational guidelines related to the ‘scheme of arrangement’ by entities, which have listed their non-convertible debt securities (NCDs) or non-convertible redeemable preference shares (NCRPS).

The newly inserted rule in the listing regulations provide that the entity -- which has listed NCDs or NCRPS -- and plans to undertake a scheme of arrangement or is involved in a scheme of arrangement will submit the draft scheme with the stock exchange for obtaining the no-objection letter before filing such scheme with any court or tribunal, India’s capital markets regulator said in a circular.

The regulations also stipulate that the designated stock exchange will forward such draft schemes and other documents to SEBI, it added. A scheme of arrangement is a court-approved agreement between a company and its shareholders or creditors.

The provisions of operational guidelines are applicable with immediate effect.

Following are the key operational aspects:

Choosing Designated Stock Exchange

• Listed entities should choose one of the stock exchanges with nationwide trading terminals as the designated stock exchange to coordinate with SEBI.

• Entities listed solely on regional stock exchanges should obtain in-principle approval for listing of NCDs/NCRPS on any stock exchange with nationwide trading terminals.

Submission of Documents

Listed entity should submit the following documents to the stock exchange.

• Draft scheme of arrangement/amalgamation/merger/reconstruction.
  Valuation report along with an undertaking related to no material impact on the valuation during the period of filing the scheme documents and period under consideration for valuation.

• Fairness opinion on the valuation of assets by an independent registered valuer from a SEBI registered merchant banker.

• Report from the board of the listed entity recommending the draft scheme.

• Audited financials for the last there years (financials not being more than six months old) of unlisted entity.

• Auditor’s certificate and detailed compliance report.

• Declaration on any past defaults of listed debt obligations and whether the listed entity or any of its promoters or directors is a wilful defaulter.

• No objection certificate from the debenture trustee.

Conditions for Schemes of Arrangement Involving Unlisted Entities

• The listed entity should include information related to the unlisted entity involved in the scheme in the notice or proposal to be sent to the holders of NCDs/ NCRPS, while seeking approval for the scheme.

• The accuracy and adequacy of such disclosures should be certified by the SEBI registered merchant banker and the same should also be submitted to the stock exchange.

• Unlisted entities can be merged with a listed entity only if the listed entity is listed on a stock exchange with nationwide trading terminals.

Other Key Operational Aspects

• All listed entities should submit a valuation report from a registered valuer. In case of scheme of arrangement between listed and unlisted entities, the listed entity should submit a valuation report on behalf of unlisted entity from a registered valuer.

• An auditor’s certificate should be filed certifying the payment/repayment capability of the resultant entity.

• Listed entity should submit a report on complaints/comments’ received on the draft scheme of arrangement to the stock exchange after 10 days from the date of filing of draft scheme before obtaining no-objection letter.

• Listed entities should clear all pending dues to SEBI, stock exchanges and the depositories before filing the draft scheme with the stock exchange. If any dues remain outstanding, the listed entities should provide the details to the stock exchange.

• Listed entity should disclose the draft scheme of arrangement and other documents on its website simultaneously while filing them with the stock exchange.

• Listed entity should also disclose the no-objection letter of the stock exchange on its website within 24 hours of receiving the same.

• Listed entity should disclose all the information, including pre and post-arrangement details on expected debt structure and fairness opinion, in the notice or proposal sent to the holders of NCDs/NCRPS for seeking approval of the scheme.

• Listed entity should provide the facility for electronic-voting to the holders of NCDs/NCRPS for seeking their approval on the scheme of arrangement.

SEBI will provide its comments on the draft scheme to the stock exchange within 30 days after date of receipt of satisfactory reply on clarifications from the listed entity, date of receipt of expert opinion if sought by SEBI, or date of receipt of no-objection letter from the stock exchange, whichever is later.