Date: 26th May 2004
Corporate Finance Department
Division of Issues and Listing
Securities & Exchange Board of India
Mittal court 224, Nariman Point
Mumbai-400 021
Dear Sir/Madam,
Sub: Interpretive letter pursuant to SEBI (Informal Guidance) Scheme 2003
We are making a request under the SEBI (Informal Guidance) Scheme 2003 for an interpretive letter. The requisite fee of Rs. 25000/- is enclosed herewith vide pay order No 648933 dated 25-05-2004 drawn on ABN AMRO Bank of India.
We request you to kindly accord confidential treatment to this letter and the issues contained herein for a period of 90 days from the date of your response to the same.
Background
Ramsarup Engineering Industries Limited (REIL) is having its registered office at 7C, Kiran Shanker Roy Road, Hastings Chamber, 1st Floor, Kolkata – 700 001 . It was incorporated in 1973.
REIL has two units;
The first unit being Ramsarup Industrial Corporation commenced its manufacturing activities in 1966 as partnership concern. The unit is situated at "D" Block, Plot 6 & 7, Kalyani Industrial Area, Nadia, West Bengal. It is producing approximately 1,45,000 MTs of Steel Wires per annum (Coated and Uncoated) in several grades and applications.
The second unit being Ramsarup Bars & Rods is situated at Athpur, Shyamnagar, 24 – Parganas (North) West Bengal. This unit was acquired in August 2002 from Nicco Corporation Ltd. It is producing approx 60000 MTs of Steel Wire Rod in coils and Steel Wire (Per annum) in several grades.
Pursuant to the scheme of amalgamation as approved by the Hon’ble Calcutta High Court,the Company got amalgamated with Karunanidhi Investments & Trading Company Limited, (KITL) incorporated in 1979, being an existing Company listed with The Calcutta Stock Exchange Association Ltd. In accordance with the approved scheme the entire assets & liabilities of the Company were transferred to and vested with KITL with effect from 1st April,2001.
Brief of the three Court Orders
The Calcutta High Court sanctioned the scheme of amalgamation of erstwhile Ramsarup Engineering Industries Limited, the transferor company, with the transferee company- presently Ramsarup Engineering Industries Limited (formerly- Karunanidhi Investments and Trading Company Limited) vide its orders dated 19th March, 28th November and 18th December, 2001.
The 1st order was passed on 19th March 2001. By virtue of the said order the Calcutta high Court sanctioned the Scheme of Arrangement for Amalgamation and declared the same as binding with effect from 1st April 2001(referred to as the ‘transfer date’). It was provided in the order that all the property, rights, interests, liabilities, duties legal suits, appeals of the transferor company were to be transferred to the transferee company.
The 2nd order was passed on 28th November 2001. By virtue of the said order, the court ordered for the dissolution of the transferor company i.e. erstwhile Ramsarup Engineering Industries Limited without winding up. The certified copies of this order along with the copies of the 1st order were filed with the Registrar of companies.
The 3rd order was passed on 18th December 2001. The order stipulated further modification in the 1st order by directing to transfer the assets and properties of the transferor company to the transferee company. The court also permitted to change the name of the transferee company (formerly- Karunanidhi Investments and Trading Company Limited) to Ramsarup Engineering Industries Limited or such other name containing the word Ramsarup as may be approved by the Registrar of Companies, West Bengal.
Change of Name
In order to retain the goodwill, the name of Karunanidhi Investments and Trading Company Limited was changed to Ramsarup Engineering Industries Limited vide letter of Registrar of Companies dated 11th June 2002.
Shareholding Pattern
Prior to the amalgamation the share holding pattern of erstwhile Karunanidhi Investments & Trading Company Limited ( renamed as Ramsarup Engineering Industries Limited ) was as follows :
|
Sl. No. Category
|
|
No. Of Folios
|
|
% Of Folios
|
|
No. Of shares Held
|
|
% Of Share Holding
|
|
|
Promoter/ Director
|
|
|
|
|
|
|
|
|
|
|
Promoters, Directors and Relatives
|
|
2
|
|
03.23
|
|
3,59,900
|
|
89.98
|
|
|
Public
|
|
|
|
|
|
|
|
|
|
|
Body Corporate
|
|
4
|
|
06.45
|
|
19,850
|
|
4.96
|
|
|
NRI’S
|
|
|
|
|
|
|
|
|
|
|
General Public
|
|
56
|
|
90.32
|
|
20,250
|
|
5.06
|
|
|
TOTAL
|
|
62
|
|
100.00
|
|
4,00,000
|
|
100.00
|
|
The details of above 4,00,000 equity shares is as follows prior to amalgamation.
2,00,000 Equity Shares of Rs. 10/ each
2,00,000 Equity Shares of Rs. 10/ each issued by way of preferential allotment to the promoter at a premium of Rs. 20/ per share.
The entire capital brought in along-with the premium was invested by KITL in the share capital of then Ramsarup Engineering Industries Limited in5,00,000 equity shares of Rs.10/ each issued at a premium of Rs. 2/ per share.
The pre amalgamation share capital of Ramsarup Engineering Industries Limited was as follows after consideration of the issuance of 5,00,000 equity share of Rs. 10/- each at a premium of Rs. 2/- per share.
57,46,900 equity shares of Rs. 10 each including 5,00,000 equity shares invested by Karunanidhi Investments & Trading Company Limited.
The companies got amalgamated and post amalgamation 5,00,000 equity shares of Rs.10/ each at a premium of Rs. 2/ per share were cancelled.
The shareholding pattern of the Company submitted to the CSE in terms of clause 35 of the Listing Agreement as on 31st March 2004 after issuing shares by the company to the share holders of Erstwhile REIL is as follows :
|
Sl. No. Category
|
|
No. Of Folios
|
|
% Of Folios
|
|
No. Of shares Held
|
|
% Of Share Holding
|
|
|
Promoter/ Director
|
|
|
|
|
|
|
|
|
|
|
Promoters Directors and Relatives
|
|
4
|
|
04.76
|
|
4,03,370
|
|
07.14
|
|
|
Body Corporate
|
|
2
|
|
02.38
|
|
30,62,970
|
|
54.24
|
|
|
Public
|
|
|
|
|
|
|
|
|
|
|
Body Corporate
|
|
6
|
|
07.14
|
|
8,40,050
|
|
14.88
|
|
|
NRI’S
|
|
1
|
|
01.19
|
|
10,75,400
|
|
19.04
|
|
|
General Public
|
|
71
|
|
84.53
|
|
2,65,110
|
|
04.70
|
|
|
TOTAL
|
|
84
|
|
100.00
|
|
56,46,900
|
|
100.00
|
|
Further requirement of Capital By REIL
The company has plans to set up a project for manufacture of TMT Bars and structural and wishes to fund the project partly by further issuing equity shares of the Company aggregating Rs 4000 Lacs.
Requirements as per SEBI for further Listing
As per Clause 2.3.1 of the SEBI (DIP) Guidelines 2000 and amendments thereof a listed company shall be eligible to make a public issue of equity shares or any other security which may be converted into or exchanged with equity shares at a later date-
provided that the aggregate of the proposed issue and all previous issues made in the same financial year in terms of size (i.e. offer through offer document + firm allotment + promoters’ contribution through the offer document), issue size does not exceed 5 times its pre-issue net-worth as per the audited balance sheet of the last financial year.
provided that in case there is a change in the name of the issuer company within the last 1-year (reckoned from the date of filing of the offer document), the revenue accounted for by the activity suggested by the new name is not less than 50% of its total revenue in the preceding 1 full-year period
A listed company which does not fulfil the conditions given in the provisos to Clause 2.3.1 above, shall be eligible to make a public issue subject to complying with the conditions specified in Clause 2.2.2"
Further, as per clause 2.8 of SEBI DIP Guidelines, no company shall make a public or rights issue of securities unless firm arrangement of finance through verifiable means towards 75% of the stated means of finance, excluding the amount to be raised through proposed Public / Rights issue, have been made.
REIL fulfils the above criteria as follows.
The pre- issue net-worth of REIL expected as on 31.03.2004 is Rs. 2523.51 Lacs. The present contemplated issue of Rs. 4000 Lacs does not exceed 5 times its pre-issue net worth. Further, REIL shall make firm arrangements of finance through verifiable means towards 75% of the stated means of finance as per clause 2.8 of the guidelines.
Current status of Equity capital
The post amalgamation share capital of Ramsarup Engineering Industries Limited is as follows.
|
52,46,900 Equity shares of Rs. 10 each
|
|
|
4,00,000 Equity shares of Rs.10 each added to capital owing to amalgamation.
|
|
|
56,46,900 Equity shares of Rs. 10 each.
|
|
Presently, 2,00,000 Equity shares of erstwhile Karunanidhi Investments & Trading Company Limited are listed and tradable on the Calcutta Stock Exchange Association Limited. The other 54,46,900 Equity shares are not listed nor traded on the exchange.
The Calcutta Stock Exchange Association Limited has not granted listing and trading permission to the remaining 54,46,900 shares stating that the promoters held more than 90% of the issued capital before the scheme of amalgamation. Owing to the scheme of amalgamation, the promoter’s contribution has reduced and the public holding in the Company has increased to/exceeded the required level.
There are two possible ways in which the shareholding pattern of the company could to changed.
- The promoters offer their shares and adhere to the formalities required for offer for sale of equities.
- The Company issues further shares wherein the stake of the promoters is automatically reduced.
Objective
The objective of the company is to list the entire existing share capital of the company and the further share capital issued on all the stock exchanges where the company wishes to list.
Query
Every company issuing further equity shares is required to have all of its previous shares issued, listed on the Stock Exchange (s) where it had sought listing.
In the incumbent case the previous issue was made by Karunanidhi Investments and Trading Company Limited, which had got its initial 2,00,000 shares listed on The Calcutta Stock Exchange Association Limited. It had further issued 2,00,000 equity shares on preferential basis for which listing and trading permissions were denied.
Further, after the scheme of amalgamation, the listing vested with the new company Ramsarup Engineering Industries Limited. Apart from the existing tradable 2 lac equity shares, the Calcutta Stock Exchange Association Limited has not granted listing and trading permission to the remaining equity capital of the company i.e. 2,00,000 shares issued on preferential basis and 52,46,900 shares issued pursuant to the scheme of amalgamation
The Calcutta Stock Exchange Association Limited had vide its letter dated 8th April,2003 sought clarification on the issue to which a reply was provided by SEBI vide its letter no CFD/DIL/YG/20551/2003 dated October 29,2003 (Copy enclosed and marked annexure 1 for ready reference).
In your reply it had been suggested that compliance under Rule 19(2)(b) of the SC (R)R does not apply as further shares were issued under a scheme of amalgamation and that the matter is needed to be examined from the angle of conditions for continuous listing in the light of various clauses of the listing agreement including clause 40A thereof.
Sub Clause (ii) of Clause 40A of the listing Agreement reads as follows:
"Where the non-promoter holding of an existing listed company as on April 01, 2001 is less than the limit of public shareholding as required at the time of initial listing, the company shall within one year raise the level of non-promoter holding to at-least 10%. In case the company fails to do so it shall buy back the public share holding in the manner provided in the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997."
The non-promoter shareholding of Karunanidhi Investments & Trading Company Limited as on 1st April 2001 was 10.02%.
Vide the scheme of amalgamation and court order passed on 18th December 2001, i.e. within one year of April 01, 2001 the non-promoter shareholding of the company rose to 38.62% of the issued share capital of the amalgamated company renamed as Ramsarup Engineering Industries Limited.
The Calcutta Stock Exchange Association Limited is yet to take a decision on the listing of the said securities.
The Company would like to issue further equity shares to the public and this could be done only after obtaining in-principle approval from the existing Stock Exchange where it is listed and all other stock exchanges where the shares are sought to be listed?
We seek clarification/exemption from prior compulsory listing of the entire share capital of the Issuer Company in case of further issue of shares or interpretation be provided to resolve the impending impasse.
In case you need any further clarification/information, we shall be pleased to provide you the same.
With Regards,
For Microsec India Limited
Category I Merchant Banker
SEBI Registration No. INM 0000 10791
Pankaj Harlalka
(Authorised Signatory)
Enclosures : As above.
DEPUTY GENERAL MANAGER
CORPORATION FINANCE DEPARTMENT
DIVISION OF ISSUES AND LISTING
( (Direct) : 22842826
( (Board) : 22850451- 56, 22880962 - 70 (Extn.: 367)
Fax : 22045633
E-mail : neelamb@sebi.gov.in
CFD/DIL/SC/ 19180 /2004
August 27, 2004
Shri Pankaj Harlalka
Microsec India Ltd.
Azimganj House,
2nd Floor, 7 Camac Street,
Kolkata – 700 017.
Dear Sir,
Sub.: Request for Interpretive Letter under Securities and Exchange Board of India (Informal Guidance) Scheme, 2003 in relation to the need for compulsory listing of the entire share capital of Ramsarup Engineering Industries Limited in case of public issue of shares.
Please refer to your letter dated May 26, 2004 seeking an "Interpretive Letter" as to whether the entire share capital of Ramsarup Engineering Industries Limited (REIL) is required to be compulsorily listed with the Calcutta Stock Exchange Association Ltd. (CSE) (being the stock exchange on which REIL has sought listing), before REIL goes for a public issue of equity shares.
It is represented by you, inter alia, vide the letter under reference that:
- REIL, an unlisted public company, was amalgamated with a company listed with CSE, viz., Karunanidhi Investments & Trading Company Ltd. (KITL) pursuant to a scheme of amalgamation sanctioned by the Calcutta High Court vide its orders dated March 19, 2001, November 28, 2001 and December 18, 2001. Accordingly, the name of KITL was changed to REIL w. e. f. June 11, 2002. REIL now has plans to set up a project and wishes to fund the project partly by further issue of equity shares.
- Only 2,00,000 shares of REIL are listed on CSE till date. CSE has not granted listing and trading permission to remaining 54,46,900 shares consisting of 2,00,000 shares issued to the promoters of the company on preferential basis and 52,96,900 shares issued to the shareholders of the transferor company, being the erstwhile REIL, pursuant to the said scheme of amalgamation.
- CSE has not granted listing and trading permission to the said shares on the grounds that the promoters of the company held more than 90% of the issued capital before the scheme of amalgamations.
- CSE is yet to take a decision on the listing of the said shares.
Without necessarily agreeing with your analysis, we observe from your submissions that CSE has yet to take a decision regarding listing of the 52,96,900 shares.
Our views on the query referred by you in your letter under reference are as under:
- Clause 5.3.4.1 of the SEBI (Disclosure and Investor Protection) Guidelines, 2000 (hereinafter referred to as the DIP Guidelines) requires the Lead Merchant Banker, appointed by a listed company making a further issue of capital, to furnish, alongwith the draft offer document, a certificate, duly signed by the company secretary of the said company or a chartered accountant, stating that the securities were listed on the stock exchanges as specified in the offer document. The intention of this clause is to ensure that the entire share capital of the listed company making public issue is listed when the company goes for further public or rights issue of shares.
- Clause 8.3.2 of the DIP Guidelines specifies that for the purposes of requirements of Rule 19 (2) (b) of the Securities Contracts (Regulation) Rules, 1957, the net offer to public (i.e., the offer made to public and not including promoters contribution, firm allotment and reservation) shall be 10% or 25% of the issue size. Clause 8.3.2 of the DIP Guidelines presupposes that the shares forming share capital of the listed company are already listed.
- In view of the above, we are of the view that in case of public issue of listed company making public issue, the entire share capital of the company should be listed before the proposed public issue by the listed company.
This position is based on the representation made to the Division of Issues and Listing in your letters dated May 26, 2004. Different facts or conditions might require a different result. This letter expresses the Division’s position on enforcement action only. It does not express decision of the Board on the questions presented.
Please note that this position is only with respect to applicability of the DIP Guidelines and does not affect applicability of any law and jurisdiction of the stock exchange or right of appeal of an applicant company.
Yours faithfully
Neelam Bhardwaj