LETTER OF MARICO LTD.
August 4, 2006
Mr. V. S. Sundaresan
General Manager
Securities & Exchange Board of India
29th Floor
World Trade Centre
Cuffe Parade, Colaba
Mumbai - 400 005
Dear Sir,
Request for interpretive letter – Listing of non-convertible preference shares on private placement basis
We enclose a case for your opinion regarding requirement of listing of non-convertible preference shares allotted on a preferential , private placement basis.
We request you to let us have an interpretive letter under the SEBI (Informal Guidance) Scheme, 2003.
We enclose cheque (no. 29289 dated 21/07/ 2006) for Rs. 25,000/- drawn on Citibank payable at par towards fees specified under the Scheme.
Thank you.
Yours faithfully,
For Marico Limited
Subhash Bhat
Head Governance & Accounting
Encl.: As above
Case for Opinion
FACTS
1. Marico Limited (Marico) is a leading Indian Group in Consumer Products and Services in the Global Beauty and Wellness space. Marico’s Products and Services in Hair care, Skin Care and Healthy Foods generated during 2005-06 a Turnover of about Rs.11.5 billion (USD 250 Million). Marico markets well-known brands such as Parachute, Saffola, Sweekar, Hair & Care, Nihar, Shanti, Mediker, Revive, Kaya, Sundari and Aromatic.
2. Equity shares in Marico are listed on the Bombay Stock Exchange (BSE) (Code 531642) & on the National Stock Exchange (NSE) (Code “MARICOIND”).
3. Marico had on 26th August 2002 issued as Bonus, 8% Redeemable Preference Shares (RePS) to the Equity Shareholders which were listed on both the BSE and the NSE. These shares were redeemed on 15th March 2004 and as on date there are no outstanding RePS issued by Marico. Therefore, as on date, the only shares in Marico that are listed are equity shares.
4. Marico now proposes to issue a fresh series of Redeemable Preference Shares (RPS). However, this issue of RPS is proposed to be made on a Private Placement basis i.e. not to the public.
5. It is also envisaged that the RPS now proposed to be issued will NOT be listed. The proposed holder of RPS has also indicated that it would not want the RPS to be listed as it is agreeable to holding the RPS as unlisted securities.
6. Marico has entered into the standard Listing Agreement with both BSE and the NSE (a copy of the agreements attached in Annexure - A).
7. Amongst the various clauses of the Listing Agreement that may be relevant for issue of RPS, the most relevant is Clause 24(a) which stipulates listing of any new shares or securities. For the sake of ready reference, the clause has been reproduced below:
"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.”
8. A plain reading of this clause suggest that listing is mandatory for the following: ( emphasis added by us, not in the original clause)
a. a further issue of shares and Securities
b. a new issue of shares and securities.
9. Both Marico and the proposed holder of RPS are desirous of NOT listing the RPS proposed to be issued. There is, thus, an apparent conflict between the Listing Agreement entered into by Marico which stipulates listing and the desire of the Company as also the proposed holder to NOT list the RPS proposed to be issued.
10. This case for opinion is aimed at sorting out the legal issues, if any, resolved before the shares are issued.
QUERIES
11. Given the above facts and our views as given below, in the light of the informal guidance given by SEBI in another matter to Magma Leasing Ltd., will Marico be required to get the proposed RPS listed on any Stock Exchange?
12. In either case, i.e. whether the proposed RPS are required to be listed or NOT, will it be mandatory for Marico to file a prospectus or any other issue document with SEBI or the Registrar of Companies or any other similar authority.
OUR VIEWS
13. Marico has analysed the facts with a view to sorting out the conflict and in the process has had informal discussions with the Stock Exchanges as also with SEBI. Marico's attention has been directed to the informal guidance given by SEBI to Magma Leasing Ltd. (MLL) (a copy attached in Annexure-B).
14. The aforesaid informal guidance seems to suggest that only if securities of a particular type (equity or preference) have already been listed and are still outstanding, will a fresh issue of securities of the same type require listing. Thus, where equity shares have been listed and are outstanding, a further issue of equity shares will have to be listed. Similarly, if any preference shares have been issued and listed and are outstanding on the relevant date, any further issue of preference shares will have to be listed.
15. This seems logical, since the aforesaid clause of the listing agreement speaks of a "further" issue of shares. The meaning of "further" has not been elaborated, but logically, a "further" issue will presuppose the existence of some shares in listed form being outstanding. Thus, if no shares of a particular type are outstanding, any issue of shares of that type will not qualify to be of further issue. This is because there are no original shares outstanding for the fresh issue to be called a "further" issue. Therefore, in Marico's case, since the preference shares earlier issued and listed are no more outstanding, a fresh issue of preference shares by Marico will not amount to a “further" issue and therefore such shares issued on a private placement basis will not invite listing.
16. The other point to be grappled with is the meaning of “any new issue of shares or securities”, which also requires mandatory listing. Here, a logical interpretation would be that if the proposal is to issue “new Shares or Securities” other than those already outstanding and if such proposed shares or securities are on a private placement basis, listing of such new shares or securities will not be mandatory. The core logic being deployed here is that listing of further or new shares or securities has been mandated to protect the rights of the holders of already listed shares and securities. It follows that if the new issue does not, in any manner, impact the rights of the holders of already outstanding and listed shares or securities, listing will not be mandatory for such new shares or securities.
17. in Marico’s case, issue of preference shares on a private placement basis will not impact any rights of the holders of existing Equity Shares. Also, the holders of existing Equity shares have already given their consent for such preference shares being issued. Therefore, the issue of preference shares by Marico on a private placement basis will not be a “new issue of Shares” to attract mandatory listing.
To sum up, based on the aforesaid SEBI guidance as also logical interpretation, it is clear that the proposed issue of Preference shares in Marico on a private placement basis will not attract the mandatory listing requirement.
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REPLY GIVEN BY MRD-DOP
General Manager
Market Regulation Department – Policy
Email:-sundaresanvs@sebi.gov.in
MRD/Policy/IGS/Corp Debt/AT/ /2006
September 13, 2006
Shri Subhash Bhat
Head Governance & Accounting
Marico Ltd.
Rang Sharda
Krishnachandra Marg
Ellisbridge
Ahmedabad – 380 006
Dear Sir,
Sub: Informal Guidance – Interpretive Letter – Clarification on listing of non convertible preference shares on private placement basis
Ref: Request for Guidance from Marico Ltd. (Marico) vide letter dated August 04, 2006
1. Please refer to your letter referred to above seeking clarification on the listing of non-convertible preference shares issued on private placement basis.
2. You had represented, inter-alia, as under:-
a. Marico is a leading Indian Group in Consumer Products and Services in the Global Beauty and Wellness space with a turnover of about Rs.11.5 billion (USD 250 Million).
b. Equity shares in Marico are listed on BSE and on NSE
c. Marico had on August 26, 2002 issued as Bonus, 8% redeemable preference shares to the equity shareholders which were listed on both BSE and NSE. These shares were redeemed on March 15, 2004 and as on date there are no outstanding redeemable preference shares issued by Marico. Therefore, as on date, the only shares in Marico that are listed are equity shares.
d. Marico now proposes to issue a fresh series of redeemable preference shares on a private placement basis.
e. Both Marico and the proposed holder of the redeemable preference shares are not desirous of listing the said privately placed redeemable preference shares.
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 Marico list the proposed private placement issue of redeemable preference shares on the stock exchanges. This clarification is sought by you in the context of clause 24(a) of the Listing Agreement.
4. In reference to your aforesaid query, you are advised to be guided by the clarification offered by SEBI to M/s. Magma Leasing Ltd. (MLL) vide letter No. MRD/Policy/IGS/AT/65512/2006 dated April 25, 2006, a copy of which is available in the SEBI website – www.sebi.gov.in. A copy of the said reply to MLL is also enclosed with this letter for your records.
5. 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.
6. 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
Encl: As above.
