ICSI has released Updates/Supplements for Corporate Restructuring & Insolvency (CRI) and Due Diligence & Corporate Compliance Management (DDCCM) paper of CS Professional Programme exams on the topic “New Takeover Code 2011” (with Checklist). The Study Materials are well made and worth reading.
I would suggest every student to take PRINT & read it instead of the existing chapters in your Study Material.
Click the links below:
In the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 through SEBI (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations, 2010 vide Notification No. LAD-NRO/GN/2010-11/05/1110 dated 13th April 2010, the following updates were made.
In regulation 3, in sub-regulation (1), in clause (f), after sub-clause (vi), the
following sub-clause shall be inserted, namely: -
“(vii) a merchant banker or nominated investor in the process of market making and subscription by the nominated investor to the unsubscribed portion of issue, in terms of Chapter XA of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009:
Provided that benefit of exception provided in sub-clause (vii) shall not be
available if the acquisition of securities in the process of market making or
subscription to the unsubscribed portion of issue results in change in control
over the target company, directly or indirectly.”
SEBI (Substantial Acquisition of Shares & Takeovers - SAST) Regulations, 1997 [Takeover Code] as amended by SEBI (SAST)
(Third Amendment) Regulations, 2009
vide F.No.LAD-NRO/GN/2009-10/20/182131 dated 6/11/2009
In regulation 3, for sub-regulation (2), the following sub-regulation shall be substituted, namely: -
“(2) Nothing contained in regulation 10, regulation 11 and regulation 12 of these regulations shall apply to the acquisition of Global Depository Receipts or American Depository Receipts unless the holders thereof, -
(a) become entitled to exercise voting rights, in any manner whatsoever, on the underlying shares; or
(b) exchange such Depository Receipts with the underlying shares carrying voting rights.”
(ie) Erstwhile there was exemption from Chapter III as such but now it is Regulation 10, 11 & 12, further one more exception from the availability of exemption under regulation 3(2) has been included which provides that the no exemption from the applicability of regulation 10, 11 and 12 of SEBI Takeover Regulations would be available on the acquisition of ADRs or GDRs where the holder is entitled to exercise voting rights on the underlying shares.
In regulation 7, in sub-regulation (1A), after the word and figure “regulation 11” and before the mark and words “, shall disclose purchase”, the words and figure “or under second proviso to sub-regulation (2) of regulation 11” shall be inserted;
(ie) Acquirer who has acquired the shares in terms of the newly inserted proviso to regulation 11(2) is also required to give the disclosure under regulation 7(1A) of SEBI Takeover Code.
In regulation 11,-
in sub-regulation (1), after the words and figure “of the voting rights,”
and before the words “in any financial year”, the words and mark “with post acquisition shareholding or voting rights not exceeding fifty five per cent.,” shall be inserted;
(ie) the acquirer is allowed to increase his shareholding by creeping acquisition to the level of 55% and not beyond it.
In regulation 11, -
(a) in sub regulation (2), (A) after the words “either by himself or through” and before the words “persons acting in concert”, the words “or with” shall be inserted;
(b) in second proviso, after the words, “such acquirer may,” and before the words “without making a public announcement”, the words “notwithstanding the acquisition made under regulation 10 or sub-regulation (1) of regulation 11,” shall be inserted;
(ie) Acquirer can enjoy 5% creeping acquisition under Regulation 10 & 11(1) [when he is between 15% & 55%] and again the new 5% when he is between 55% & 75% in the same financial year.
In regulation 14,-
(a) in sub-regulation (2), the mark “.” occurring at the end shall be
substituted with the mark “:”;
(b) after sub-regulation (2), the following proviso shall be inserted,
namely:-
“Provided that in case of American Depository Receipts or Global Depository Receipts entitling the holder thereof to exercise voting rights in excess of percentage specified in regulation 10 or regulation 11, on the shares underlying such depository receipts, public announcement shall be made within four working days of acquisition of such depository receipts.”
(ie) Entitlement to exercise the voting rights on the underlying shares of ADR/GDR in excess of percentage specified in regulation 10 or regulation 11 shall also be disclosed within 4 working days in addition to erstwhile conversion of ADR/GDR only.
Clarifications on SEBI (Prohibition of Insider Trading) Regulations, 1992 issued on 24th July 2009. SEBI has amended certain provisions of SEBI (Prohibition of Insider Trading) Regulations, 1992 vide notification dated November 19, 2008 for the purpose of better disclosures and prevention of insider trading. Subsequently we received a few queries from the companies seeking clarification mainly on the interpretation of amendments. The queries received and the clarifications given by us on the same are presented below for information of all the listed companies.
To read the same, click Clarifications on SEBI (Prohibition of Insider Trading) Regulations, 1992
CFD/DCR/TO/Cir-01/2009/06/08 dated 6th August 2009
Securities and Exchange Board of India (Investor Protection and Education Fund) Regulations, 2009 by way of Notification No. LAD-NRO/GN/2009-10/05/163525 dated 19th May 2009 with immediate effect.
Yes, SEBI calls IEPF (under MCA) as IPEF by this regulation which has 14 regulations, divided into V Chapter with a Schedule for the purpose of listed companies. Understand the said regulation now.
Reg 2(1)(e) ->‘Fund’ means the Investor Protection and Education Fund (IPEF) created by SEBI u/s. 11 (functions) of the SEBI Act.
As per Regulation 3, the Fund shall be deemed to have been established on 23rd day of July, 2007, by the order made by the Board under section 11 of SEBI Act.
Reg 2(1)(g) ->‘Legal proceedings’ MEANS any proceedings before a court or tribunal where 1000 (one thousand) or more investors are affected or likely to be affected by:-
(i) mis-statement, misrepresentation or omission in connection with the issue, sale or purchase of securities;
(ii) non-receipt of securities allotted or refund of application monies paid by them;
(iii) non-payment of dividend;
(iv) default in redemption of securities or in payment of interest in terms of the offer document;
(v) fraudulent and unfair trade practices or market manipulation;
(vi) such other market misconduct which in the opinion of the Board may be deemed appropriate;
BUT DOES NOT INCLUDE any proceeding where the Board is a party or where SEBI has initiated any enforcement action.
Reg 4 - The following amounts shall be credited to the Fund:-
(a) contribution as may be made by SEBI to the Fund;
(b) grants and donations given to the Fund by the Central Government, State Government or any other entity approved by the for this purpose;
(c) proceeds in accordance with the sub-clause (ii) of clause(e) of sub-regulation (12) and the sub- regulation (13)of regulation 28 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers-sast) Regulations, 1997;
(d) security deposits, if any, held by stock exchanges in respect of public issues and rights issues, in the event of de-recognition of such stock exchanges;
(e) amounts in the Investor Protection Fund and Investor Services Fund of a stock exchange, in the event of de-recognition of such stock exchange;
(f) interest or other income received out of any investments made from the Fund;
(g) such other amount as SEBI may specify in the interest of investors.
Reg 5 (1) The Fund shall be utilised for the purpose of protection of investors and promotion of investor education and awareness in accordance with these regulations.
(2) Without prejudice to the generality of the object in sub-regulation (1), the Fund may be used for the following purposes, namely:-
(a) educational activities including seminars, training, research and publications, aimed at investors;
(b) awareness programmes including through media - print, electronic, aimed at investors;
(c) funding investor education and awareness activities of Investors’ Associations recognized by SEBI;
(d) aiding investors’ associations recognized by the Board to undertake legal proceedings in the interest of investors in securities that are listed or proposed to be listed;
(e) refund of the security deposits which are held by stock exchanges and transferred to the Fund consequent on derecognition of the stock exchange as mentioned in Regulation 4(d) in case the concerned companies apply to SEBI and fulfill the conditions for release of the deposit subject to Regulation 6.
(f) expenses on travel of members of the Committee, who are not officials of SEBI, and special invitees to the meetings of the Committee, in connection with the work of the Committee;
(g) salary, allowances and other expenses of office of Ombudsman; and
(h) such other purposes as may be specified by the Board.
Reg 6 - The aid to investors’ associations, as referred to in clause (d) of sub-regulation (2) of Regulation 5, shall be given by SEBI in accordance with the guidelines made by it and subject to the following conditions:-
(a) that the aid shall not exceed 75% of the total expenditure on legal proceedings;
(b) such aid shall not be considered for more than one legal proceeding in a particular matter;
(c) if more than one investors’ association applies for seeking legal aid, the investors’ association whose application is received first, shall be considered for such aid.
Reg 7, 8, 9 & 10 deals with the constitution of Advisory Committee, its functions, meetings and meeting the expenses.
Reg 11 – The Accounts of the fund shall be maintained in accordance with the SEBI(Form of Annual Statement of Accounts and Records) Rules, 1994 as far as such rules apply, which shall be audited within 6 months of Financial Year.
Reg 12 & 13 deals with relaxation of regulation & delegation.
Reg 14 read with the Schedule to the Regulation deals with amendment to Regulation 28 of SEBI Takeover Code, which is as under:
(a) in sub-regulation (12) , for clause (e) , the following shall be substituted, namely:-
“(e) the entire amount to the merchant banker, in the event of forfeiture for nonfulfillment of any of the obligations under the Regulations, for distribution in the following manner, after deduction of expenses, if any, of the merchant banker and
the registrars to the offer, -
(i) one third of the amount to the target company;
(ii) one third of the amount to the Investor Protection and Education Fund established by the Board;
(iii) one third of the amount to be distributed pro-rata among the
shareholders who have accepted the offer.”
(b) in sub-regulation (13) , for the words “to the regional stock exchange of the target company, for the credit of the Investor Protection Fund or any other similar fund” appearing after the words “ proceeds thereof” the words “to the Investor Protection and Education Fund established by the Board” shall be substituted.
The SEBI (Disclosure & Investor Protection) Guidelines amended on 24th February 2009 and click here to download the amended full SEBI (DIP) Guidelines, 2009 @ http://www.sebi.gov.in/guide/dip2009.pdf
Major highlights by CS Adhithya of Cool CS:
The brief of the amendments are as under:
Opening of Public Issue
An issue shall open within 12 months from the date of issuance of the observation letter by SEBI, if any or within 3 months from the 31st day from the date of filing of the draft offer document with SEBI, if no observation letter is issued.
Requirement of filing updated offer document
File an updated offer document with SEBI, highlighting all changes made in the document and in case of 'significant changes' in the offer document, it shall be filed with SEBI atleast 1 month before filing final prospectus with RoC/SE;
Change in Timelines of Bonus Issue
Shall be completed WITHIN 60 days from the Date of Board Resolution, where-in bonus was announced subject to Shareholders approval OR WITHIN 15 days from the Date of Board Resolution authorising such issue. Once resolved, the board shall not have the option of changing the decision.
Option not to disclose the floor price or price band
Where the issuer has not disclosed floor price or price band in prospectus filed with RoC/SE, it shall be disclosed atleast 2 working days before opening of the bid in case of IPO and atleast 1 working day before the opening of the bid in case of FPO, by way of an announcement in all thenewspapers in which the pre-issue advertisement was released by the issuer or the merchant banker;
Justification for Price in some cases
Justification for price is required to be given in the Offer Document and further, if the Issuer has not disclosed floor price or price band in the prospectus and taken an option to disclose it before 2 working days (for IPO) or 1 working day (for FPO) before opening of an issue, then, announcement shall contain the relevant financial ratios, computed for both upper and lower end of the price band and the basis of issue price or prescribed statements to guide investors in RHP which are,
(a) a statement that the floor price or price band, as the case may be, shall be disclosed at least two working days (in case of an initial public offer) and at least one working day (in case of a further public offer) before the opening of the bid);
(b) a statement that the investors may be guided in the meantime by the secondary market prices (in case of a further public issue);
(c) names and editions of the newspapers where the announcement of the floor price or price band would be made;
(d) names of websites (with address), journals or other media in which the said announcement will be made.
Preferential Allotment of Warrants
For preferential allotment of warrants minimum 25% paid at the time of allotment upfront and if warrant is not exercised, then such 25% money is forfeited.
Lock-in Requirements under Preferential Issue
Shares issued to Promoters (UPTO 20% Post-Issue Capital) | Lock-in for 3 years |
Total Post-Issue Capital UPTO 20% | Lock-in for 3 years |
Shares issued as Preferential allotment to promoter or promoter group [other than above] or to others | Lock-in for 1 year |
Note: Lock-in of convertible instruments (other than Warrants) shall be reduced to the extent of lock-in of such convertible instruments.
Requirements when listed less than 6 months & lock-in
If the Co is listed for less than 6 months, then for such issue (other than to QIB's upto 5) consider the highest of IPO price or Value per share as 391 to 394 Scheme or average weekly high & low closing prices of such period or 2 weeks preceeding relevant date and recompute the price after 6 months, the difference shall be paid by the allottees to the company, otherwise such securities shall continue lock-in till the amount is paid.
Impact of Relaxation under Regulations 29A of Takeover Code
Shareholder (to whom preferential allotment is made) should not have sold such shares during last 6 months (unless relaxed u/R 29A of SEBI Takeover Code).
Preferential Allotment should be completed WITHIN fifteen days from the passing of the resolution (unless relaxed u/R 29A of SEBI Takeover Code).
Copies of Certificate of Statutory Auditor of the Company (Pracitsing CA certificate is allowed only when relaxation u/R 29A of SEBI Takeover Code) certifying that such issue is in compliance with the requirements of the SEBI guidelines, has to be laid @ the General Meeting convened to get the approval for issue of shares.
In case of relaxations granted under Regulation 29A of SEBI Takeover Code, the requirements regarding pricing, lock-in, disclosures in explanatory statement and Certification shall not be applicable to preferential allotment of equity shares, fully convertible debenture and partly convertible debentures ONLY IF an adequate disclosure about the plan is given in the Explanatory Statement.
Exemption from Rule 19(2)(b)
Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) (Second Amendment) Regulations, 2009
Yes, takeover amended for the second time in 2009 and
Regulation 29A - ''Relaxation from the strict compliance of provisions of Chapter III in certain cases.''
29A. SEBI board may, on an application made by a target company, relax any or more of the provisions of the chapter [CHAPTER III: Substantial Acquisition Of Shares Or Voting Rights In And Acquisition Of Control Over A Listed Company which covers Regulation 10 to 29A], subject to such conditions as it may deem fit, if it is satisfied that:
(a) the central government or state government or any other regulatory authority has removed the board of directors of the target company and has appointed other persons to hold office as directors thereof under any law for the time being in force for orderly conduct of the affairs of the target company;
(b) such directors have devised a plan which provides for transparent, open, and competitive process for continued operation of the target company in the interests of all stakeholders in the target company and such plan does not further the interests of any particular acquirer;
(c) the conditions and requirements of the competitive process are reasonable and fair;
(d) the process provides for details, including the time when the public offer would be made, completed and the manner in which the change in control would be effected;
(e) the provisions of this chapter are likely to act as impediment to implementation of the plan of the target company and relaxation from one or more of such provisions is in public interest, the interest of investors and the securities market.''
Regulation 25(2B) - Competitive Bid
SEBI has also amended regulation 25 Takeovers Regulations, 1997, wherein, after sub-regulation (2A) the following sub-regulation shall be inserted, namely,
''(2B) No public announcement for a competitive bid shall be made after an acquirer has already made the public announcement pursuant to relaxation granted by the Board in terms of regulation 29A (as above).''
Click here for this amendment http://www.box.net/shared/rxx0gf6m4r
To track all Takeover recent amendments, click http://yehseeyes.blogspot.com/search/label/SEBI%20Takeover
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Further in the format, 1. "Entity" means "Promoter or every person forming part of the Promoter Group". 2. Names of the promoter and promoter group shall be the same as appearing in other filings made with stock exchanges.
Amendment Notification in http://www.sebi.gov.in/circulars/2009/cfdcir.pdf |
Listing Agreement Amendment
Subsequently Amendment to Clause 35 & 41 of listing agreement is notified.
Cl 35: The format for reporting the shareholding pattern contains six parts. The first two parts viz. Part I(a) and I(b) contains disclosures of shareholding of promoter and promoters group. Part I(a) and I(b) of the format are required to be amended to include details of shares pledged by promoters and promoter group entities.
Cl 41: The format for submitting the quarterly financial result of the company, is required to be modified to include details of promoters and promoter group shareholding including the details of pledged shares.
The reporting as per the revised formats under clause 35 and 41 shall start from the quarter ending March 31, 2009.
Amendment Notification in http://www.sebi.gov.in/circulars/2009/dil0309.pdf
You can now download the word formats for editing & filing with Stock Exchanges by clicking http://www.box.net/shared/1e9yquco6a
A promoter or every person forming part of the promoter group of any company shall, within 7 working days from 28th January 2009 disclose details of shares of that company pledged by him, if any, TO that company.
Disclosure by Promoter or Promoter Group TO Company
Disclosure by Company To Stock Exchanges
If during any quarter ending March, June, September and December of any year, the lower of the following limits are exceeded,
Then, Company shall inform details of pledge received from promoter or promoter group within 7 working days of receipt of information TO the Stock Exchanges.
Click here to download the amendment - Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations, 2009
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.
Conclusion:
Vide this amendment:
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
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%.
Conclusion
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
Dear All,
In the case of M/s Jain Studios Limited the SEBI vide its order dated 17th Oct 2007 has granted exemption from Open Offer under Regulation 11(2 & 2A) SEBI SAST Regulations for acquisition of shares by the promoters via preferential issue of shares to the extent of around 20% of voting capital.
Generally the SEBI will not give exemption from the open offer where a substantial shareholder (Promoters) of a target Company acquiring voting capital via preferential issue of shares for enhancing his shareholding as it may be lead to denying of opportunity to the small shareholders to exit from Company.
However, in this case the SEBI granted exemption from the Open Offer for acquisition of the shares via preferential issue based strong submission by the acquirers ( Promoters).
Please find below extract of the SEBI order in this connection and all of you requested to read the same.
SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
IN THE MATTER OF PROPOSED ACQUISITION BY PREFERENTIAL ALLOTMENT OF EQUITY SHARES OF JAIN STUDIOS LTD. BY ANKUR SERVICES AND GROWTH FUND LTD. – EXEMPTION APPLICATION FILED UNDER REGULATION 4(2) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997.
1.0 BACKGROUND
1.1 Jain Studios Ltd. (hereinafter referred to as the target company) is a company limited by shares incorporated under the Companies Act, 1956, having its office at Scindia Villa, Ring Road, Sarojini Nagar, New Delhi – 110023. The equity shares of the target company are listed on the Bombay Stock Exchange Ltd. (BSE), National Stock Exchange of India Ltd. (NSE), The Calcutta Stock Exchange Association Ltd. (CSE), The Delhi Stock Exchange Association Ltd. (DSE), Ahmedabad Stock Exchange Ltd. (ASE), Madras Stock Exchange Ltd. (MSE) and Vadodara Stock Exchange Ltd. (VSE).
1.2 Ankur Services and Growth Fund Ltd. (hereinafter referred to as the acquirer) belonged to the promoter group of the target company and currently holds 72,857 equity shares, constituting 0.5% of the total paid up capital of the target company. The promoter group of the target company (including the acquirer and the persons acting in concert) collectively holds 78.82 Lac shares of the target company constituting 54.79% of its paid up capital.
2.0 APPLICATION FOR EXEMPTION
2.1 The acquirer, vide letter dated June 08, 2007, forwarded an application to Securities and Exchange Board of India (hereinafter referred to as SEBI) made under regulation 4(2) read with regulation 3(1) (l) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, (hereinafter referred to as the Takeover Regulations). The said application has been filed seeking exemption from making public announcements and open offer under the provisions of regulation 10 and 11 of the Takeover Regulations with respect to its proposed acquisition of 1,15,94,203 equity shares of the target company @ Rs. 10 each at a premium of Rs. 7.25 per share, by way of preferential allotment. The exemption has been sought inter alia on the following:
i) The issuance of shares is necessitated, as a part of the settlement with the Industrial Development Bank of India (IDBI) through "Stressed Assets Stabilization Fund" (SASF) and the proposed allotment would make the target company debt free.
ii) Incase the target company does not carryout the proposed preferential allotment, it runs many risks including:
a) Non-settlement of dues with IDBI/SASF and the possible sinking of all capital of public financial institution.
b) Loss of over Rs. 43 crore which would wipe-off the entire net-worth of the target company which stood at Rs. 27.32 crores on March 31, 2006.
c) The target company operates in an industry where technology changes very quickly and incase of non-settlement, it would not be able to recapitalize its business. It would lead to further obsolescence of its technology and folding up of its main business in the near future.
d) The shareholders (8400) of the target company might loose their entire investment in it.
iii) The target company with the help of the acquirer and SASF managed to secure a deal which would revive its business and non execution of the said deal would be fatal to the target company and its shareholders.
2.2 The shareholding pattern of the target company before and after the proposed preferential allotment, as per the aforesaid application, is given below:
Category | No. of shares/ total voting rights held
| Percentage of Shareholding
| ||
| Before the proposed acquisition
| After the proposed acquisition
| Before the proposed acquisition
| After the proposed acquisition
|
Promoters | 2,02,959 | 2,02,959 | 1.41 | 0.78 |
Acquirer (along with the persons acting in concert) | 76,79,657 | 1,92,73,860 | 53.38 | 74.19 |
Mutual Funds | 1,900 | 1,900 | 0.01 | 0.007 |
Public | 65,03,366 | 65,03,366 | 45.21 | 25.02 |
TOTAL | 1,43,85,982 | 2,59,80,185 | 100.00 | 100.00 |
3.0 RECOMMENDATION OF THE TAKEOVER PANEL
3.1 The aforesaid application of the acquirer was forwarded to the Takeover Panel by SEBI, in terms of Regulation 4 (4) of the Takeover Regulations and the Takeover Panel vide its report dated July 09, 2007 has recommended as under:
"The Panel considered the application and the documents filed in support and the factors, which are noted above and found that it is in the interest of common shareholders to recommend exemption as sought for and hence the Panel recommends exemption."
4.0 FURTHER SUBMISSIONS
4.1 The acquirer, inter alia stated that the preferential allotment of 115.94 lac shares of the target company would be made only to the acquirer and that pursuant to the said proposed allotment, the promoters' shareholding in the target company would increase to 74.97% of the enhanced paid up capital of the target company.
4.2 The acquirer, vide its letter dated July 31, 2007 and e- mail dated August 10, 2007 has further confirmed that:
i. the target company has complied with the Guidelines for Preferential Allotment including pricing as prescribed under Chapter XIII of the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000.
ii. an Extra-Ordinary General Meeting ( EGM) of shareholders of the target company was convened on May 25, 2007 seeking the approval of its shareholders under section 81(1A) of the Companies Act, 1956 in respect of the proposed preferential allotment to the acquirer. The shareholders approved the special resolution under section 81 (1A) of the Companies Act, 1956 in respect of the said preferential allotment. The said resolution was approved by the shareholders of the target company other than the acquirer and that the acquirer had abstained from voting on the said resolution.
5 .0 FINDINGS:
5.1 I have carefully considered the application dated June 08, 2007 filed by the acquirer, the letter dated July 31, 2007, e-mail of the acquirer dated August 10, 2007 , the recommendations of the Takeover Panel and the relevant materials available on record.
5.2 I note, from the letter dated January 29, 2007 of SASF (filed by the acquirer along with its application) addressed inter alia to the target company/acquirer, that, the target company had taken a term loan of Rs. 24 crore from IDBI and that the acquirer along with others stood as guarantors for the said loan. SASF, in the said letter had inter alia advised the target company and the acquirer to repay the said loan together with the interest, accrued interest etc. The acquirer, vide letter dated nil (received by SEBI on June 12, 2007 ) further stated that SASF had agreed to settle the loan for an aggregate amount of Rs.21,18,00,000/-. It has been stated in the said letter that the target company had entered into an agreement dated March 30, 2007 with the acquirer and that the acquirer had agreed to step into the shoes of the target company in respect of the aforesaid loan. It was also stated that the acquirer would be totally and completely liable for all the payments towards SASF in respect of the above loan and that it would indemnify the target company from all the claims of SASF. The acquirer in the said letter had also informed that, towards the consideration for providing the money for repayment for the said loan, target company needed to issue its 1,15,94,203 equity shares to the acquirer.
5.3 I note that the acquirer belonged to the promoter group of the target company (promoter group) which holds 54.79% (together with the persons acting in concert) of the total paid up equity capital of the target company and the proposed acquisition by way of preferential allotment would increase the said shareholding of the promoter group to 74.97% of the total paid up equity capital of the target company. As the acquirer together with the other promoters is already having control over the target company, I note that there would not be any change in control pursuant to the proposed acquisition.
5.4 I further note that the EGM for passing the special resolution under section 81(1A) of the Companies Act, 1956 in respect of the proposed preferential allotment to the acquirer was held on May 25, 2007. In the notice sent to the shareholders in terms of section 173 of the Companies Act, 1956, the target company had proposed to the shareholders that the proposed preferential allotment (exclusively to the acquirer) would be pursuant to and in accordance with the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 and subject to other approvals, permissions, etc. I note that, in the explanatory statement forming part of the notice of EGM, the target company had inter alia disclosed the identity of proposed allottee (the acquirer), the object and intention of the proposed preferential allotment, consequential changes, if any, etc. I also note from the submissions of the acquirer that it had abstained from voting on the special resolution.
5.5 I have also taken note from the submission by the acquirer that the special resolution required under section 81 (1A) of the Companies Act, 1956 has been passed by the shareholders of the target company after making all requisite disclosures to the shareholders to the notice of EGM and explanatory statement thereto. The target company, in respect of facility of voting through postal ballot for passing of the special resolution, vide e-mail dated August 10, 2007 informed SEBI that it would be difficult for it to take the approval of the shareholders again, as the cost involved in the process would very high. In the facts and circumstances of the case, especially in view of the fact that the special resolution for the preferential issue of shares was passed in the EGM held on May 25, 2007 and that the required disclosures had already been made in the explanatory statement, I am of the view that condition of passing special resolution under section 81 (1A) of the Companies Act, 1956 by providing facility of voting through postal ballot may not be insisted in this case.
5.6 In view of the above, I agree with the recommendations of the Takeover Panel and consider the present case as a fit case for granting exemption from making a public announcement as required under regulation 11 of the Takeover Regulations.
6.0 ORDER
6.1 In view of the foregoing, I , in exercise of the powers conferred upon me by virtue of section 19 of the Securities and Exchange Board of India Act, 1992 read with sub - regulation (6) of regulation 4 of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, hereby grant exemption to the acquirer, namely Ankur Services and Growth Fund Ltd. from complying with the provisions of Regulation 11 of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 with regard to the proposed preferential allotment of 1,15,94,203 equity shares of the target company, namely Jain Studios Ltd. ,subject to the conditions that the acquirer and the target company shall ensure –
i ) that in respect of the proposed preferential allotment, the relevant norms including the norms regarding the pricing specified in Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 are observed and complied with;
ii) that there shall be no reduction in the minimum level of public shareholding required as per the listing agreement pursuant to the proposed preferential allotment and that the target company shall maintain the minimum level of public shareholding, as required in terms of the listing agreement.
iii) the target company shall comply with the undertaking given by it vide letter dated July 31, 2007.
6.2 The acquirer shall complete the proposed transaction within 30 days from the date of the order and file a report with Securities and Exchange Board of India in the manner specified in Regulation 3(4) read with Regulation 3(5) of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 confirming compliance including conditions specified in this order.
G. ANANTHARAMAN
WHOLE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA
Place: Mumbai
Date: October 17, 2007
Thanks & Regards
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Alagar
09884731993
