PNB Housing Finance: The (Missing?) Registered Valuer Report

On June 15, we had written about a proposed preferential issue by PNB Housing Finance, in respect of which a proxy advisor issued a report asking public shareholders to vote against the proposed investment. As an alternative to a preferential issue, the report suggested that the company should have considered a “rights issue”. In our previous article, we considered a “rights issue” and a “preferential issue” from the perspective of certainty in funding, disclosure obligations, approvals and timelines and pricing.

The debate has since focused on whether the proposed preferential issue required a report of a registered valuer and whether such a report was in fact procured. In this article, we consider the legal framework around which the debate turns, comprising the SEBI ICDR Regulations, the Companies Act and PNB Housing Finance’s articles of association.


Corporate Governance

Corporate Governance and the case of PNB Housing Finance

Recently PNB Housing Finance announced a “preferential issue” of shares, through which the Carlyle Group will acquire a controlling interest in the company. A proxy advisor has issued a report asking public shareholders to vote against the proposed investment. The report argues that the price at which Carlyle will be investing in the company belies the company’s true value. As an alternative to a preferential issue, the report suggests that the company should have considered a “rights issue” in which all shareholders will be entitled to participate. In this context, it is important to consider whether a preferential issue and a rights issue are, in fact, comparable options for fundraising and accordingly, if there is merit in the allegation of poor corporate governance that has been levelled against the target company’s board of directors.


Sharing of Unpublished Price Sensitive Information on WhatsApp and “Innocent Tippee” Liability

In 2020, a set of orders were issued by the SEBI in which the SEBI imposed penalties on certain individuals for forwarding WhatsApp messages with details of companies’ earnings ahead of formal announcements. These individuals received such messages on WhatsApp groups that they were a part of, and forwarded such messages as they had received them. The SEBI refused to accept the defense that the information shared was simply market chatter that was “heard on the street” and was not unpublished price sensitive information (“UPSI”). The SEBI’s orders were recently overruled by the Securities Appellate Tribunal (“SAT”). The SAT ruled that information could be considered UPSI only when a person in receipt of such information had knowledge that it was UPSI.


SPACs: A ReNew-ed Interest in US Listings

In 2020, over $80 billion was raised in the US from more than 200 SPACs (special purpose acquisition companies), with SPAC IPOs comprising over 50% of US IPOs. While Indian laws have been amended to facilitate cross-border mergers, regulatory and taxation challenges restrict the ability of the parties to efficiently merge an Indian company with the SPAC. The parties’ objectives could therefore be met through externalisation and structuring within the scope of Indian regulations. Apart from the regulatory and taxation challenges involved in a US listing through the SPAC route, Indian companies should also be prepared for compliance with a stringent governance, internal controls, accounting and disclosure regime. Several Indian technology companies have plans to go public. It remains to be seen how many will opt for the SPAC route, which has increasingly emerged as an attractive option for companies around the world particularly in the technology and ESG sectors. In the meanwhile, the SPAC alternative could also well be explored by Indian regulators as a route for listing in India with appropriate safeguards.


Voluntary Delisting

The current situation caused by the COVID-19 pandemic is unprecedented and several listed companies have seen a reduction in their value due to the sharp fall in stock prices compared to the beginning of 2020. The recent weeks have also seen delisting announcements by certain widely held companies including those on the NIFTY-50 and subsidiaries of global corporations.
Voluntary delisting is essentially a strategic move where a promoter (controlling shareholder) of a listed company and the listed company seek to delist the shares from the stock exchanges in India and is primarily governed by the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009, as amended (the “Delisting Regulations”).
This note discusses the legal framework and process for voluntary delisting under the Delisting Regulations and certain key issues involved in delisting.


SEBI Order: AstraZeneca Pharma and the Elliott Group

In connection with a proposed delisting of shares of AstraZeneca Pharma India Limited (AZPIL) in 2014, the SEBI recently issued an order dated June 5, 2020 under Sections 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992, holding that:
(i) AstraZeneca Pharmaceuticals AB Sweden (AZPAB), the promoter of AZPIL, and the Elliott Group (a group of related foreign institutional investors that collectively held a significant shareholding in AZPIL) colluded with each other to get the shares of AZPIL delisted and influence the delisting price of such shares without considering the interests of the retail shareholders of AZPIL; and
(ii) The conduct of AZPAB and the Elliott Group amounted to a manipulative and fraudulent trade practice under the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Practice Relating to Securities Market) Regulations, 2003.
The SEBI questioned the conduct of AZPAB and the Elliott Group and concluded that there existed a ‘meeting of minds’ between AZPAB and the Elliott Group prior to the delisting announcement. This note analyses the SEBI’s order.


COVID-19: Certain Issues to Consider for Listed Indian Companies

While corporations across the globe brace for the full impact of the COVID-19 pandemic on their business, operations and financial results, listed companies need to be mindful of additional compliance requirements and responsibilities. This note discusses certain considerations which are relevant for listed Indian companies in the current COVID-19 scenario in relation to (i) periodic disclosures and reporting; (ii) board and shareholder meetings; (iii) impact on financial results and annual report; (iv) trading when in possession of UPSI and during trading window closure; (v) fund-raising; and (vi) duties of directors. As a practical matter, these considerations will continue to be relevant even in the future while tackling the aftermath of the COVID-19 pandemic or other crisis situations.


COVID-19: Temporary Easing of SEBI Fund-raising Rules

With a view to facilitate fund-raising from the capital markets in the wake of the current COVID-19 pandemic, the Securities and Exchange Board of India has decided to grant certain relaxations from the provisions of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended, to public issues (both initial and further public offerings) and rights issues. The relaxations, which are contained in two separate SEBI circulars each dated April 21, 2020, essentially relate to (i) the validity of the SEBI observations, (ii) the requirement to file a fresh draft offer document in case of change in issue size and (iii) certain conditions applicable to rights issues.


Completing an M&A Transaction On-Market – Certain Key Considerations

In case of acquisitions involving listed companies, parties often choose to complete the transaction ‘on-market’, that is, on the floor of the stock exchanges, on account of tax benefits. This note analyses certain key legal considerations in completing such on-market acquisitions, including: (i) considerations for non-FPI foreign acquirers; (ii) the modes through which negotiated transactions can be completed on-market; and (iii) considerations under the takeover regulations when completing acquisitions during the pendency of a mandatory tender offer.