Start with Search - Type your requirement here

Tuesday, October 28, 2008

[TakeoverCode]Creeping acquisition UPTO 5% in open market & Buy Back exemption amended

Dear All,

Consolidation of holdings under Takeover Regulations

As per extent of provisions of the SEBI Takeover Code the acquire can acquirer upto 55% of shareholding of a listed Company under 5% creeping acquisition limit.

Vide PR No.239/2008 dated 27th October 2008 SEBI has decided that henceforth consolidation through creeping acquisition upto 5% be allowed to persons holding 55% and above but below 75%, subject to the condition that such acquisition can only be via open market purchases in the normal segment, and for the purpose, no consolidation via bulk/ block/ negotiated deal or through preferential allotment would be permitted.

Further, any increase in the holding of promoters pursuant to buy back, exemption under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations was required to be sought. It has now been decided to automatically exempt increase/ consolidation upto 5% per annum as a result of buy back by a company.

Necessary amendments to SEBI (Substantial Acquisition of Shares and Takeovers) Regulations are being carried out separately.


Vide this amendment:

  • In addition to creeping acquisition benefit upto 55%, the acquirer who is holding 55% or above not exceeding 75% can go for creeping acquisition upto 5% only through open market purchase AND no other route.
  • When there is increase in shareholding of the promoter due to buy back of securities, such increase upto 5% per annum is permitted and no need to sought excemption from the SEBI.

    Thanks & Regards
    Karvy - Merchant Banking
    Contact: 919790906827

Amendments To Takeover Code – Oversight Or Intended?
This is further to our most recent hotline "Creep up to 75% - Takeover Code Relaxed" discussing the proposed amendments relating to shareholding consolidation under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the "Takeover Code") as announced by the Securities and Exchange Board of India ("SEBI") in its press release No. 239/2008 dated October 27, 2008 ("Press Release").
Whilst SEBI has finally effected the amendments on this Monday, November 3, 2008 and amended the Takeover Code, the amendments, on several counts, do not correspond to the amendments as suggested by the Press Release.
This Hotline attempts to bring out and discuss the discrepancies between the Press Release and the amendments (as effected), possible reasons behind the discrepancies and finally the implications of the amendments in their current form.
The Discrepancies - Amendments v. Press Release
SEBI has amended Regulation 11(2) of the Takeover Code by inclusion of a proviso, which is summarized as under (the "Amendments") —
Any person who holds 55% or more but less than 75% may acquire additional shares or voting rights entitling him up to 5% voting rights in the target company ("
Target") if--
(a) the acquisition is through open market purchase in normal segment on the stock exchange but not through bulk deal /block deal/ negotiated deal/ preferential allotment; or (b) the increase in the shareholding or voting rights of the acquirer is pursuant to a buyback of shares by the Target; and
the post acquisition shareholding of the acquirer together with persons acting in concert with him does not increase beyond seventy five per cent (75%).

So, what to do, on

  • Acquisition of Shares up to 5% - Any person holding 55% or more (but less than 75%) shares of the Target permitted to further increase his shareholding by not more than 5% in the Target without making a public announcement.
  • Increase in shareholding due to buyback - Public announcement not required if the shareholding of any shareholder holding 55% or more is increased up to 5% due to buyback. No "per annum" time limit stipulated.
  • 75% threshold - Acquirer restricted from increasing his shareholding more than 75% without making a public announcement.

The Amendments appear to be open ended and create ambiguities leaving significant scope for interpretation. Herein below we analyze and attempt to understand SEBI's rationale behind each of these amendments.
Acquisition of shares up to 5%
One of the most important and critical feature of the Amendments is to do away with the requirement of making a public announcement when a shareholder/acquirer holding 55% or more shares proposes to consolidate his shareholding by further acquisition of up to 5% shares of the Target. Amendments leave it open ended for anyone to interpret whether the 5% acquisition limit stipulated in Regulation 11(2) is applicable to each financial year, or is only a one time affair. In fact, on account of the above ambiguity, though a little far-fetched, it is possible to interpret Regulation 11(2) to imply that a person holding more than 55% shares can go on acquiring shares of the Target from the open market in less than 5% tranches multiple times in a year. However, in light of the spirit of the Takeover Code and more particularly Regulation 11(1), it appears likely that the SEBI intended to apply such 5% limit each financial year.

Having said that, there are views that SEBI probably wants to permit such creeping acquisitions beyond 55% only once in the lifetime of the Target, and any further acquisitions whether in the same year or in the subsequent years should mandate a public announcement. This view is not entirely without foundation as the Amendments were introduced as an aggressive measure to bolster the bearish stock market, and knowing that SEBI would like to retrogress to a more cautious approach position as and when the markets gain momentum. In fact, earlier this year the Finance Ministry was contemplating steps to make 25% minimum public shareholding a uniformity across the board for listed companies, but decided against it apprehending it might encourage further selling activity from promoters and disappoint an already distressed stock market.
Buyback triggering public announcement
Another aspect of the Amendments which has come under debate is the application of Regulation 11(2) even to non promoters due to buyback. Amendments mark a significant turning point as shareholders holding 55% or more shares no longer need to approach the takeover panel for seeking exemption from making public announcements for up to 5% increase in their shareholding due to buy back. Prior to the Amendments, shareholders approached the takeover panel under Regulation 4(2) of the Takeover Code to seek exemption from making a public announcement if they anticipated that increase in their shareholding will require a public announcement to be made.
Separately, there are views that the Amendments may be disadvantageous to promoters if their shareholding increases by more than 5% due to an open market buyback, as they will still have to make a public announcement even when they are prohibited from participating in such buybacks.
75% Threshold
The clarification in the Amendments restricting shareholding consolidation beyond 75% leaves a room for interpretation whether the 75% threshold will stand modified to 90% in case of companies which are required to have a minimum public shareholding of 10%. In fact, had the Amendments not stipulated the 75% limit, it would have been only natural to read the 75% threshold in conjunction with the earlier proviso to Regulation 11(2), which provides that the 75% threshold will stand modified to 90% in cases where the listing norms permit minimum public shareholding of 10%.

While it remains to be seen whether the discrepancies mentioned above were the result of an oversight by the SEBI or were actually intentional, SEBI should take immediate steps to allay the ambiguities highlighted above to help the acquirers and stakeholders interpret the Amendments in the manner in which they were intended to by the SEBI.
- Ruchir Sinha & Nishchal Joshipura

Friday, October 24, 2008

[FEMA]Allocation of FII Investments - irrespective of Debt or Equity

Dear All,
Allocation of FII Investment between debt and equity

As you aware of that as per extent Schedule of the Foreign Exchange Management (Transfer or Issue of any Foreign Secuity) Regulations, 2004, in terms of which Foreign Institutional Investors are allowed to purchase, on repatriation basis, dated Government securities/treasury bills, listed non-convertible debentures/bonds, commercial papers issued by an Indian company and units of domestic mutual funds and Security Receipts issued by Asset Reconstruction Companies either directly from the issuer of such securities or through a registered stock broker on a recognized stock exchange in India, subject to:

1. The FII shall restrict allocation of its total investment between equity and debt instruments (including dated Government Securities and Treasury Bills in the Indian capital market) in the ratio of 70:30

2. If the FII desires to invest up to 100 per cent in dated Government Securities including Treasury Bills, non-convertible debentures/bonds issued by an Indian company, it shall form a 100 per cent debt fund and get such fund registered with SEBI; and

3. The total holding by a single FII in each tranche of scheme of Security Receipts shall not exceed 10 per cent of the issue and the total holdings of all FIIs put together shall not exceed 49 per cent of the paid up value of each tranche of scheme of Security Receipts issued by the Asset Reconstruction Companies.

In order to accord flexibility to the FIIs to allocate their investments across equity and debt instruments, the Securities and Exchange Board of India (SEBI) , vide its Circular No IMD/FII & C/33/2007 dated October 16, 2008 has dispensed with the conditions provided in Regulation 15 (2) of the SEBI FII Regulations pertaining to restrictions of 70: 30 ratio of investments in equity and debt, respectively. Accordingly, it has been decided, to dispense with the existing provisions under FEMA Regulations vide AP DIR Circular No.25 dated 17th October 2008. However, the stipulations made in point no 3 above in respect of FII holdings in security receipts issued by Asset Reconstruction Companies shall continue.

So, now there is no restriction for investment by FII with regard to allocation of product like equity, debt etc w.e.f 17th Oct 2008.

Thanks & Regards
Karvy - Merchant Banking
Contact: 919790906827

Thursday, October 23, 2008

[ECB] rupee expenditure, rupee accounts, 3G spectrum & revised all-in-cost

Dear All,
Amendment of ECB Guidelines vide AP DIR Circular No.26 dated 22nd Oct 2008 by RBI:

Change in end use restriction:

Prior to this amendment, borrowers in the infrastructure sector are allowed to avail ECB up to USD 100 million per financial year for Rupee expenditure for permissible end-uses under the Approval Route. Considering the huge funding requirements of the sector, particularly for meeting Rupee expenditure, the existing limit of USD 100 million has been raised to USD 500 million per financial year for the borrowers in the infrastructure sector for Rupee expenditure under the Approval Route. Provided ECBs in excess of USD 100 million for Rupee expenditure should have a minimum average maturity period of 7 years:

To ease liquidity pressure in the system henceforth, ECB up to USD 500 million per borrower per financial year would be permitted for Rupee expenditure and / or foreign currency expenditure for permissible end - uses under the Automatic Route. Accordingly, the requirement of minimum average maturity period of seven years for ECB more than USD 100 million for Rupee capital expenditure by the borrowers in the infrastructure sector has been dispensed with.

In order to further develops the telecom sector in the country, payment for obtaining license/permit for 3G Spectrum will be considered an eligible end - use for the purpose of ECB.

Change in parking of ECB proceeds in overseas:

At present, ECB proceeds are required to be parked overseas until actual requirement in India and such proceeds can be invested in the following liquid assets (a) deposits or certificate of deposit offered by banks rated not less than AA (-) by Standard and Poor / Fitch IBCA or Aa3 by Moody's; (b) deposits with overseas branch of an AD bank in India; and (c) Treasury bills and other monetary instruments of one year maturity having minimum rating as indicated above.

It has now been decided that henceforth the borrowers will be extended the flexibility to either keep these funds off-shore as above or keep it with the overseas branches / subsidiaries of Indian banks abroad or to remit these funds to India for credit to their Rupee accounts with AD Category I banks in India, pending utilisation for permissible end-uses. However, as hitherto, the rupee funds will not be permitted to be used for investment in capital markets, real estate or for inter-corporate lending.

Change in All in Cost:

In view of the tight liquidity conditions in the International financial markets, it has been decided to rationalize and enhance the all-in-cost ceilings as under:

Average Maturity Period

All-in-Cost ceiling over 6 months LIBOR*



Three years and up to five years

200 bps

300 bps

More than five years and up to seven years

350 bps

500 bps

More than seven years

450 bps

500 bps

* for the respective currency of borrowing or applicable benchmark.

The all-in-cost ceilings will be reviewed from time to time depending on the conditions in the international financial markets.

Keeping in view the risks associated with unhedged foreign exchange exposures of SMEs, a system of monitoring such unhedged exposures by the banks on a regular basis is being put in place.

The said amendments to the ECB guidelines will come into force with immediate effect.

All other aspects of ECB policy such as USD 500 million limit per company per financial year under the Automatic Route, eligible borrower, recognised lender, end-use, average maturity period, prepayment, refinancing of existing ECB and reporting arrangements remain unchanged.

Thanks & Regards
Karvy - Merchant Banking
Contact: 919790906827

Saturday, October 11, 2008

[SEBI]FAQ/Notes for CS Executive Program on Securities Law & Compliances

Yes, the Securities Exchange Board of India (SEBI) is helping ICSI students at the very right time by publishing an updated Frequently Asked Questions (FAQ) on various topics covered under Module-II, Paper 6 - "Securities Law and Compliances" of Company Secretary Executive Program.

It can really help you to understand the subject in a lucid manner, the most jolly way.

Now, CS friends can enjoy reading & win the forthcoming CS exams with ease.... Follow the following links...


FAQ-Secondary Market

FAQ-Mutual Funds

FAQ-Foreign Institutional Investors



FAQ-Straight Through Processing

FAQ-Collective Investment Schemes

FAQ-Buyback of Securities

FAQ-Portfolio Managers


FAQ-Consent Orders

Enjoy FAQuin....

CS Updatin...

See Yes -> Yes, ACS

↑ Grab this Headline Animator