1. CORPORATE RESTRUCTURING Pavan Kumar Vijay

2. GOVERNING PROVISION SECTION 391-394 of Companies Act, 1956 Most liberal section in the entire Companies Act, 1956. By way of SCHEME you can propose & achieve whatever you want

3. TYPES OF RESTRUCTURING REDUCTION OF CAPITAL MERGER DEMERGER

4. RESTRUCTURING BIFR High Court Approving Authorities

5. 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 listing status)is merging in a Weak Company (in terms of size, or unlisted). SECTION 391-394 of Companies Act, 1956

6. DEMERGER Division of a Company with two or more identifiable business units into two or more separate companies SECTION – 2(19AA) of Income Tax Act, 1961.

7. Extinguishing or Reducing the paid-up capital, Securities Premium Account or liability of members with respect to their unpaid calls -An effective way of internal restructuring REDUCTION OF CAPITAL SECTION – 100 – 105 of Companies Act, 1956 SECTION 100 to 105 of Companies Act, 1956

8. A FEW VARIETY OF MERGER Unlisted with Listed Listed with Unlisted Merger of Subsidiary with Holding Company Merger with Group Company Healthy Company with Weak Company Merger through BIFR

9. STOCK EXCHANGES ROLE REQUIREMENTS PERSPECTIVE Listing Agreement Compliances Stock Exchange Internal Norms Observations Compliance of Securities laws Compliance of Companies Act

10. 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)

11. Clause 24(a) The Company to obtain in-principle approval for listing from the exchanges having nationwide trading terminals where it is listed, before issuing shares or other securities to the shareholders of Transferor Company. Listing Agreement Compliances.. contd

12. Clause 40A Listing Agreement Compliances..contd The Company to comply with Continuous Listing requirements while framing a scheme of merger/demerger.

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

14. Stock Exchange Norms..contd MINIMUM CAPITAL REQUIREMENTS 1. 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 2. Minimum Net Worth – 20 crores (Post amalgamation) *BSE Stipulations

15. 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 – Falls below 25% of Post merger capital, then the Promoters have to dilute excess portion. *BSE Stipulations Stock Exchange Norms..contd

16. 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

17. Compliance of Other Laws The Stock Exchange(s) alongside considers the compliance of Securities laws, regulations, rules etc. applicable on the Company and Companies Act also

18. 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;

19. O Valuations Analysis No undue benefit to Promoters / Particular group Investors interest not to be affected Back door Entry for listing Change in Management/Control RVATIONSBSE

20. I SSUES

21. 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

22. 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

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

24. 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

25. MERGER THROUGH BIFR AN EFFECTIVE WAY TO REVIVE YOUR SICK COMPANY

26. MERGER THROUGH BIFR EXEMPTION FROM TAKEOVER CODE Regulation 3(1)(j) of SAST Regulations, 1997 provides that: Nothing contained in Regulation 10, 11 & 12 shall applies to acquisition: j) Pursuant to a scheme : (i) framed under section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986);

27. MERGER THROUGH BIFR EXEMPTION FROM CL40A OF LISTING AGREEMENT Clause 40A as amended on 13th April, 2006 gives exemption to BIFR referred companies: The Non-Promoters shareholding can be below 25% of the total capital of the company pursuant to BIFR order in any rehabilitation scheme.

28. DEMERGER Reliance Natural Resources Ltd Reliance Capital Ventures Ltd

29. TYPES OF DEMERGER Listed Company demerging into two companies (both could be listed). Listed Company is demerged into two companies and another unlisted entity is merging with the one of the demerged entity. Distribution of shareholding in a Wholly owned Subsidiary among shareholders

30. 1. At least 10 per cent of securities issued by a company was offered to the public through advertisement & following conditions were fulfilled: (a) minimum 20 lakh securities was offered to the public; (b) the size of the offer to the public Rs. 100 crores ; and (c) the issue was made only through book building allocation of 60 % of the issue size to QIBs 2. It shall offer at least 25 % of each class to the public through Advertisement & Shares applied in pursuance of such offer were allotted CONDITION FOR LISTING (Rule 19 (2) (b) of SCR Rules)

31. EXEMPTION FROM CONDITION OF RULE 19 (2) (b) Listed Company merging with Unlisted Company. In case of a demerger of a Listed Company,the Resultant Company to get the benefit of listing. LISTING UNDER CL. 8.3.5.1 OF DIP GUIDELINES

32. 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 of DIP Guidelines Cont….

33. Exemption u/c 8.3.5.1 Cont…. 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. 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.

34. 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 Cont….

35. ISSUES

36. Whether Demerger & Merger are possible in one scheme? 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……

37. Case Studies

38. Morarjee Goculdas Spg. & Wvg. Co. Ltd. (MGC) -Demerger Scheme- FACTS i. MGC 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.

39. Salient Features of the Scheme Before merger MGC transferred its complete Textiles Business to MTL in lieu of which MTL allotted shares to a SPV, MGC Shareholders Trust. MGC changed its name as Morarjee Realty Ltd. (MRL). The investment by MGC (Now MRL) in MTL was distributed among the shareholders of MGC in the ratio of 10:21.. The equity shares in MTL held by MGC Shareholders Trust was also distributed among the shareholders in the ratio of 1:25, free of cost. The Preference shares held by MGC Shareholders Trust were also offered to the shareholders at a discounted price.. The new shares received by the shareholders of MGC (MRL) got 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.

40. Benefits achieved…….. 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.

41. Financial Benefits to Shareholder ParticularsAmount (Rs.) as on 24th March 2005 Amount (Rs.) as on 26th May 2006 Value of the shares held by a shareholder as on record date (5th Jan,2004) (A) 100 shares @55 5500 Shares in MRL 100 shares @125 12500 @694 69400 Shares in MTL 51.5 shares @80 4,120 @100 5,150 Total (B) 16,62074550 Net benefit (B-A) 11,12069,050

42. Reliance Industries Limited - A Unique Scheme of Arrangement- FACTS PRE –ARRANGEMENT SCENARIO Reliance Industries Limited was engaged in various businesses: (i) Coal based power business; (ii) Gas based power business; (iii) Financial services business; (iv) Tele-Communication business

43. The family arrangement aims at Segregation between the two Ambani Brothers Provision for Specified Investors was made: Holdings of RIL and other companies in the control of Mr. Mukesh Ambani were transferred to a wholly owned subsidiary, Reliance Industrial Investments and Holdings Limited (RIIHL) along with a Private Trust (Petroleum Trust). RIIHL and Petroleum Trust were described asSpecified Investors which renounced their rights in the scheme itself. RIL… demerger

44. As a result of demerger the shareholders of Reliance Industries Ltd. other than Specified Investors got one share each in the following four resulting companies for each share held in RIL as on the record date: Reliance Energy Venture Ltd. (REVL) Reliance Communication Venture Ltd. (RCOVL) Reliance Capital Venture Ltd. (RCVL) Reliance Natural Resources Limited (RNRL) The shares of all these resulting companies got listed on the stock exchanges under the provisions of Cl 8.5.3.1 of the SEBI (DIP) Guidelines. RIL… demerger

45. Benefits achieved…….. ParticularsAmount (Rs.) 24th March 2006 Amount (Rs.) 26th May 2006 Value of the shares held by a shareholder as on record date (25th Jan,2006) (A) 100 shares @928 92800 Shares in RIL100 (@708) 70800(@950) 95000 Shares in REVL100 (@38) 3800(@37) 3700 Shares in RCOVL100 (@290) 29000 (@270) 27000 Shares in RCVL100 (@24) 2400 (@23) 2300 Shares in RNRL100 (@23) 2300 (@27) 2700 Total108300130700 Net benefit1550037900

46. REDUCTION OF CAPITAL

47. Types of Reduction of Capital Writing off Losses & Fictitious 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.

48. Reduction of Capital- A Strategic Step To Clean-up the Balance Sheet To rationalize the capital base Revival of Sick Company

49. RESTRUCTURING STRATEGIES What's Your Move??

50. Strategy I LISTING (Without offer to Public) FEW STRATEGIC MOVES Strategy II RAISING PROMOTERS HOLDING (Beyond 55%)

51. Strategy III ACQUISITION OF LISTED CO. (Exemption from Takeover Code) Strategy IV CLUBING OF RESOURCES (Without raising Capital) FEW STRATEGIC MOVES..contd

52. LISTING Direct listing is costly & complicated But Listing of Company provides for….. Unlock value of business Brings liquidity Attract investors for further growth Strategy I

53. Strategy IA LISTING THROUGH MERGER Small/loss making listed companies are selected by unlisted strong companies Unlisted company is merged with listed company with maximum possible shares to promoters of unlisted Company Promoters of Unlisted Company get shares in a listed entity

54. Strategy IB LISTING THROUGH MERGER Acquisition of Regional Listed Company(RSE) Merger of financially sound unlisted co with listed co Now your Company is ready for Listing INDONEXT LISTING DIRECT LISTING

55. Strategy II RAISING PROMOTERS HOLDING Revised provisions of SEBI Takeover Code does not allow promoters to acquire even a single share beyond 55% Specific exemption to Merger/Demerger An Unlisted company is created by Promoters This entity is merged with listed company Promoters holding is raised up to 75%

56. Strategy III ACQUISITION OF LISTED COMPANY SEBI Takeover Code does not allow acquisition of shares of a listed company beyond 15% or Change in Control by any outsider without a PA Specific exemption to Merger/Demerger An Unlisted company is created by Acquirer This company is merged with listed company Acquirers holding may go up to 75% of increased capital base The Management may also change.

57. Strategy IV CLUBING OF RESOURCES Basic purpose of merger is to Synergy of Resources, but the it also increases the capital base High capital base make servicing of capital difficult Proposed transferee company acquires shares in transferor company Companies are merged Crossholdings get cancelled Resources got clubbed, capital base remain low. Effectively, increases EPS.

58. Restructuring offers tremendous opportunities for companies to grow & add value to the shareholders It unlocks the true potential of the company It is a Strategy for Growth & Expansion It also helps in Cleaning up & create Synergy of Resources To sum up……

59. It is the Company Secretary in the organisation who has to take proactive steps from suggesting roadmap to the company till its implementation to achieve the underlined objectives of restructuring To sum up……

60. Thanks a lot… Pavan Kumar Vijay Past President, ICSI