General Manager
Market Regulation Department – Policy
Email:-sundaresanvs@sebi.gov.in
MRD/Policy/IGS/AT/65512/2006
April 25, 2006
Shri Sajjan Kumar Kedia
Associate Vice President
Magma Leasing Limited
Magma House
24, Park Street
Kolkata– 700 016
Dear Sir,
Sub: Informal Guidance – Interpretive Letter – Clarification on listing of non-convertible redeemable preference shares
Ref: Request for Guidance from Magma Leasing Ltd. (MLL) vide letter dated January 19, 2006
1. Please refer to your letter referred to above seeking clarification on the trading in privately placed fixed income securities under SEBI (Informal Guidance) Scheme, 2003.
2. You had represented as under:-
a. MLL is a listed NBFC with its equity shares listed at BSE, NSE and CSE.
b. MLL had, in the past, issued non-convertible preference shares (with different rights other than the present issue) which were not listed in any stock exchange.
c. MLL now proposes to issue 9.7% cumulative non convertible redeemable preference shares through private placement.
d. MLL is of the view that fresh issue of non-convertible redeemable preference shares which are to be privately placed by a listed company do not require listing on the stock exchanges unless the issuer desires the same to be listed under the circumstances wherein no such shares (of the same class and with similar rights) have earlier been issued and listed by the company. Accordingly, the question of in-principle listing approval for the proposed private placement issue of preference shares does not arise.
3. Based on the above facts, you have sought a clarification from SEBI in the form of an interpretive letter as to whether it would be necessary for MLL to either obtain in-principal approval or list its securities in the stock exchanges. This clarification is sought by you in the context of clause 24(a) of the Listing
4. Agreement and the provisions of SEBI circulars dated September 30, 2003 and December 22, 2003.
5. Without necessarily agreeing with your analysis, our views on your aforesaid query is as under:-
a. Para 4.1 of SEBI circular dated December 22, 2003 provides as under:-
“i. Type of Issuer companies
a) The SEBI circular dated September 30, 2003 would be applicable to all listed companies which have any of their securities, either equity or debt, offered through an offer document, i.e., through a public issue and listed on a recognized stock exchange and also includes Public Sector Undertakings whose securities are listed on a recognized stock exchange.
b) Further, unlisted companies/statutory corporations/other entities, if they so desire, may get their privately placed debt securities listed in the stock exchanges, by complying with the relevant provisions of the said circular.
ii. Prospective and existing issues
a) The SEBI circular is applicable to all debt securities that have been and would be issued on a private placement basis on or after the date of the circular, i.e., September 30, 2003.
b) The circular would also apply to those issuer companies whose outstanding debt securities were issued prior to September 30, 2003. However, such issuer companies are required to comply with the provisions of the circular before March 31, 2004 for which transition time was provided vide press release dated November 25, 2003.
c) If, however, the issuer companies do not comply with the aforesaid conditions for listing of such securities before March 31, 2004, then such securities would remain unlisted and, would, therefore, not be permitted for trading in the Stock Exchange trading platform from April 01, 2004.”
b. The aforesaid SEBI circulars are applicable to securities issued by listed companies provided the issuer companies are desirous of listing and trading these securities in the Stock Exchange trading platform. If the issuer companies do not wish to get their securities listed, such securities may remain unlisted; however, such securities would not be eligible for trading in the Stock Exchange trading platform.
c. Clause 24(a) of the Listing Agreement reads as under:-
“The company agrees to obtain “in-principle” approval for listing from the exchanges having nationwide trading terminals where it is listed, before issuing further shares or securities. Where the company is not listed on any exchange having nationwide trading terminals, it agrees to obtain such ‘in-principle’
approval from all the exchanges in which it is listed before issuing further shares or securities. The company also agrees to make an application to the exchange
for the listing of any new issue of shares or securities and of the provisional documents relating thereto.”
d. The provisions of clause 24(a) of the Listing Agreement read with Rule 19(4) of the SCRR requires the issuer companies to list only further issue of the same class of securities.
e. In view of the above, it is clarified that:-
i. As regards the proposed issue of 9.7% cumulative non convertible redeemable preference shares on a private placement basis, it would not be mandatory for MLL to obtain either ‘in-principle’ approval or final listing approval, in terms of clause 24(a) of the Listing Agreement, since no such preference interests have been earlier issued by MLL and listed on the stock exchanges.
ii. As the securities proposed to be issued by MLL are cumulative non convertible redeemable preference shares, the provisions of SEBI circular dated September 30, 2003 and December 22, 2003, which deals with private placement of corporate debt securities, would not be applicable for the proposed issuance of preference shares.
6. The above views are based on the representation made to the Department in your aforesaid letter under reference. Different facts or conditions might require a different result. This letter does not express decision of the Board on the questions referred.
7. You may note that the above views are expressed only with respect to the clarification sought on the circulars referred by you in your aforesaid letter and do not affect the applicability of any other law or Regulations of SEBI.
Yours faithfully,
V S SUNDARESAN
