Tuesday, September 22, 2009

SEBI decides to amend Listing Agreement, Takeover Regulations, etc.

SEBI has issued a press release stating the decisions taken at the Board meeting held today and certain aspects have been highlighted. The decisions relate to amendments of the Listing Agreement and the new ICDR 2009, the Takeover Regulations and certain other amendments.

The press release is fairly self explanatory and in any case one may wait for the actual amendments to consider their implications but a few comments may be worth making.

The Listing Agreement is proposed to be amended to provide for an auditor's certificate in case of certain corporate restructuring transactions such as mergers, demergers, etc.. The certificate will essentially provide that the accounting treatment followed under the scheme is in compliance with the applicable accounting standards. It is true that such schemes of restructuring are often used for following accounting practices not wholly in consonance with accounting standards. SEBI apparently wants to put an end to this by asking the Auditors to certify whether compliance of such accounting standards is sought to be avoided through the Scheme. However, while I would like to wait for the actual wording of the new clause, I am not sure whether such a change can bring an end to such avoidance.

The Takeover Regulations are proposed to be amended to provide that in case of acquisition of ADRs/GDRs, where the holders of such ADRs/GDRs are entitled to voting rights on the underlying shares by virtue of clauses in the depository agreement or otherwise, "open offer obligations will be triggered" if the limits under Chapter III are crossed. Presently Regulation 14(2) in effect provides that it is the event of conversion/exercise, that such obligations are exercised.

A lacunae regarding disclosure of 2% acquisition/sale for the 55-75% window is sought to be plugged and thus, even after 55%, if shares are further acquired/sold, then disclosure would be required at 2% acquisitions/sales.

A clarification is also proposed to clearly demarcate the 5% creeping acquisitions upto 55% and the 5% acquisition thereafter. This adds yet another clarification to this controversial and confusing amendment.

Then an amendment is proposed to extend the facility of anchor investors to issue of IDRs.

The actual text of the amendments are awaited and will help us know what the exact implications are.

- Jayant Thakur


Umakanth V. said...

Mr. Thakur, thanks for the post. As far as the Takeover Regulations are concerned, the proposed amendments seem to recognise a possible loophole in the ADR/GDR mechanism and effectively override the informal guidance provided in the case of Bharti (discussed earlier at http://indiacorplaw.blogspot.com/2009/07/depository-receipts-and-takeover.html). It appears that neither the pre-amendment provisions of the Takeover Regulations nor the informal guidance ruling considered in detail the possibility of ADR/GDR holders being conferred voting rights, and the present change seems to be in recogntion of market practice that has developed on that count.

Umakanth V. said...

Further to my earlier comment, the timing (i.e. urgency) of the change to the Takeover Regulations invokes a sense of curiousity considering that the Regulations are facing an overhaul under the auspicies of the Takeover Regulations Advisory Committee (TRAC) (that has already invited public comments).