Key concerns for minority investors in listed companies

Private equity and other investors (strategic or otherwise), while making minority investments in a listed company (listco), have to navigate a myriad of regulations including the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations), the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Code), and the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations), and grapple with various regulatory challenges, some of which are briefly discussed below.

Deal documentation:

The Listing Regulations require listed entities to make disclosures regarding “material” events and information. These regulations define “material” in a broad and inclusive manner, and would generally cover minority investments which the listed target is party to. Also, under the Takeover Code the term “acquisition” includes “agreeing to acquire the shares or voting rights in, or control over a target company”. Therefore, any agreement relating to a minority listco investment needs to be carefully assessed from a regulatory perspective.

Due diligence:

The PIT Regulations prohibit any communication of unpublished price sensitive information (UPSI), and any person in possession of UPSI is classified as an “insider”. Insiders are restricted from dealing in securities of the listed entity. An incoming investor understandably wants to undertake due diligence of the listed target to evaluate business risks and potential. This could result in the investor being classified as an “insider”.

Puja Sondhi is a partner and Sumeet Singh is a principal associate at Shardul Amarchand Mangaldas. The views and opinions expressed in this article are solely those of the authors and do not necessarily reflect the official view or position of the firm.