Friday, July 17, 2009

"Clarifications" by SEBI to the additional 5% creeping acquisition requirements

Readers may recollect that SEBI had amended the Takeover Regulations vide a notification dated October 30, 2008 and a 5% creeping acquisition was introduced for holding between 55-75% under certain conditions. This notification was discussed by me in this blog here. Certain concerns were raised as to the interpretation of the notifications. SEBI has apparently given certain clarifications as reported by www.moneycontrol.com and the clarifications were made apparently at the Board Meeting of SEBI of July 10, 2009. As I write this post, no formal clarification – neither a press release nor a notification - apart from this media report, is available from SEBI but I am sure a formal circular/notification will soon follow.

The report states that “there were several misconceptions and several clarifications which the corporate world and legal fraternity had been seeking from the regulator” and thus SEBI has given certain clarifications.

The clarifications do not give a picture that is significantly different in what we felt here at this blog. Let me highlight the major of the clarifications as per this report.

is this 5% an annual exercise; is it something that I can do once every year. SEBI has clarified that that’s not the case. It is a onetime 5%. It’s a cap of 5%, however, it has clarified it can be done in one or several tranches.”.

This is exactly what was felt to be the right view by this blog – I had stated that “This new creeping acquisition is not available annually and repetitively, unlike the creeping acquisitions upto 55%. Thus, the acquirer will be able to increase his holding by another 5% only. To give an example, the holding of 58% can be increase upto 63% only. It is not as if such a person can go on increasing 5% every year.”

The next clarification is on whether the creeping acquisition is financial year related. The clarification given by SEBI is, :-

The other big issue was is the financial year linked––does that mean that March 31, 2009 onwards that limit of 5% goes away. SEBI has clarified that’s not the case. There is no specified time period within which one needs to do this 5%. It can be done as and when wanted and no time period has been fixed.”.

Again, nothing new – this was also what was felt earlier to be the right view – as per my earlier blog, :-

Having said that, there is no time limit for acquiring this additional 5% and it can be done even in stages. One could say that this facility has been introduced to deal with the low market prices today. However, there is no restriction of time or stock market indices and one can acquire this additional 5% even if the markets have boomed again!”

Finally, the question was whether the creeping acquisition limit stops at 75% or whether the 5% limit applies. In other words, if, e.g., a Promoter holds 73%, will the 5% limit apply, overriding the other 75% limit? SEBI as clarified as follows:-

“The other clarification that has come out from SEBI is that post 75% one cannot do this even if it were at 73% and one could go technically up to 78%––it will be capped-off at 75%.”

Again, this was precisely stated in this blog as follows:-

4) Also, the maximum holding after this additional acquisition can be only upto 75%. Thus, for example, a person holding 73% can acquire only an additional 2% and not 5%.”

These clarifications seem to be the major ones and the formal notification that may follow may give more.

Finally, I had expressed a thought in my earlier post that,:-

“However, there is no restriction of time or stock market indices and one can acquire this additional 5% even if the markets have boomed again! Of course, SEBI could drop this facility at that time!!”

The report states that SEBI is contemplating whether or not to drop this facility. The report observes:-

“(SEBI) is reviewing the shareholding pattern on the basis of March 2009 filings of all corporate and it may add or delete from this special exemption.”.

To conclude, some issues seem to have got resolved even if we were to complain that the clarifications are too late since the amendments were to beat depressed markets and that the amendments come through the media rather than at least a press release by SEBI.

Anyway, let us wait for the formal notification and see what SEBI actually says.

- Jayant Thakur

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