Merger of step-down subsidiary with Holding Company

SEBI has released informal guidance to Renaissance Jewellery Limited (RJL) under the Informal Guidance Scheme read with SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI LODR) whereby two wholly owned subsidiaries of RJL were desirous of getting merged with it.

Facts of the case are as follows:

·    Renaissance Jewellery Limited (RJL) is a Public limited company listed on BSE and NSE.

·     RJL has an unlisted wholly owned subsidiary (WOS) known as N Kumar Diamond Exports Limited (NKDEL)

·     NKDEL has a subsidiary House Full International Limited (HFIL) wherein NKDEL holds 55% of share capital and RJL holds the remaining 45%

·        NKDEL and HFIL are getting merged with RJL

RJL raised a query to SEBI seeking informal guidance whether the proposed amalgamation is exempted under Regulation 37 of SEBI LODR

Provisions of SEBI LODR:

As per Regulation 37(1) and 37(2) of LODR, a listed entity desirous of getting involved in a scheme of arrangement shall file the draft scheme of arrangement proposed to be filed before any Court or Tribunal, with the stock exchange to obtain an NOC or observation letter before filing the draft scheme of arrangement with any Court or Tribunal and without obtaining the NOC or Observation Letter it shall not file any scheme of arrangement with any court or Tribunal

Regulation 37(6) of LODR states that:

Nothing contained in this regulation shall apply to draft schemes which solely provide for merger of a wholly owned subsidiary with its holding company:

Provided that such draft schemes shall be filed with the stock exchanges for the purpose of disclosures

It implies that, Regulation 37(6) exempts NOC/observation letter from stock exchange in case of merger of a wholly owned subsidiary with its holding company. However, draft scheme is be required to file with stock exchange for the purpose of disclosure.

SEBI’s view

SEBI has stated that since whole of share capital of HFIL is held directly by NKDEL and indirectly, through NKDEL, by RJL also hence HFIL shall be considered WOS of NKDEL as well as RJL.

Hence, the proposed amalgamation would be governed by Regulation 37(6) of SEBI LODR and hence the proposed amalgamation of NKDEL and HFIL with RJL would be exempted under regulation 37(6) of SEBI LODR