See my earlier post on a recent decision of SEBI on whether increase in percentage holding consequent to buyback of shares would amount to "acquisition" under the Takeover Regulations. If that and earlier posts are reviewed, one would note that SEBI has taken a fairly consistent stand that such increase does amount to acquisition.
Now, in a recent order granting exemption under the Takeover Regulations, SEBI has taken the matter even further and made its stand even more consistent.
Let's quickly review the background first.
SEBI, with the help of the Takeover Panel, considers applications for exemption from the relevant provisions of the Takeover Regulations. SEBI has granted in several earlier cases such exemption when the percentage holding of the Promoters increases on account of buyback of shares. However, till now, at least in the cases I have read and recollect, the exemption was total. For example, if the holding of the Promoters increased because of this from, say, 60% to 68%, SEBI would exempt the whole of such increase. Thus, the acquisition of shares upto 5% under the creeping acquisition limits (where available - see further comments later) was additionally available.
Now, SEBI, in a recent exemption order, has tightened this further and has stated that only the increase beyond the 5% creeping acquisition would be granted and thus, effectively, the creeping acquisition limit would not be additionally available. Thus, where, in this case, the holding of the Promoters was to increase from 66.82% to 73.92, i.e., an increase of 7.10%, the exemption was granted to the increase of 2.10% only.
SEBI has observed that an increase upto 5% on account of buyback (amongst other ways) was available and hence such limit should be exhausted first and exemption be granted to the 2.10% beyond such 5%. The Promoters thus would not be entitled to use that creeping acquisition.
Such exemption orders are of course granted on a case to case basis and one does not know whether this order reflects a change in policy and whether in all future cases, the creeping acquisition limits would be allowed to be used up first. Nonetheless, this order makes the stand of SEBI even more consistent with its views on the matter.
Let us watch this issue for further developments which may be possible. As discussed earlier, while there are some difficulties in law, considering that SEBI has taken such a consistent stand, no person - Promoters in particular - may want to take SEBI head-on on this issue and risk such an increase without exemption and hence the issue may be deemed to be closed for practical purposes for future buybacks.
- Jayant Thakur