SEBI has published its informal guidance on a matter that delves into the mechanics of computing the creeping acquisition limit of 5% per year in a company whose share capital may have undergone changes during the same period.
Aksh Optifibre Limited made an application on August 17, 2012 to SEBI to seek its informal guidance on the specifics of its case. The company’s promoters had made a series of acquisitions of shares and global depository receipts (GDRs) of the company during the period between April 1, 2012 and July 31, 2012. During that period, the share capital of the company underwent dilution due to certain conversion of foreign currency convertible bonds (FCCBs) into equity shares. While the promoters acquired shares/GDRs at three different points in time during the period, there were two occasions where the share capital was diluted.
The company’s question to SEBI was whether the 5% creeping acquisition limit under Reg. 3(2) of the SEBI Takeover Regulations of 2011 must be calculated with reference to the total number of shares outstanding at the beginning of the financial year (i.e. April, 2012) or those outstanding at the time of computation of the limit (i.e. post dilution due to conversion).
After considering the provisions of the Takeover Regulations, SEBI arrived at an altogether distinctive interpretation which is different from either of the situations suggested in the company’s query to SEBI. SEBI’s approach requires the company to consider each acquisition separately. Its reasoning is as follows:
5. It is clarified that the quantum of acquisition of voting rights for the purpose of regulation 3(2) of the Takeover Regulations, 2011, shall be computed separately for every acquisition of voting rights based on the paid-up share capital of the target company at the time of acquisition and aggregated for the financial year. …
SEBI’s letter contains an explanation through the workings of the acquisitions and dilutions during the period that occurred with respect to the company.
SEBI’s interpretation is consistent with the explanation (i) to reg. 3(2) which provides that “gross acquisitions alone shall be taken into account regardless of any intermittent fall in shareholding or voting rights … owing to … dilution of voting rights owing to fresh issue of shares by the target company”. Therefore, it would be necessary to add up the percentages of each acquisition separately without giving effect to each dilution so as to determine the aggregate acquisitions during the financial year.