The Securities and Exchange Board of India (SEBI) has recently issued a regulatory framework for streamlining mergers/schemes of arrangement involving listed companies in India. The underlying purpose of the framework is to ensure that interests of public shareholders are protected, by regulating mergers of large unlisted companies with small listed companies. The framework also addresses mergers/schemes of arrangement of an unlisted wholly owned subsidiary company with its listed parent entity.
Previously, SEBI had amended the listing agreements to require stock exchanges to grant prior approval for schemes of arrangement involving listed companies. During a review of these proposals, SEBI raised concerns over such mergers, including dilution of public shareholding and increase in promoter shareholder through share swaps, inflated valuation of unlisted companies increasing and substantial acquisition of voting rights.