Tuesday, June 4, 2013

SEBI order in Educomp matter

A recent SEBI order has granted an exemption to Educomp's CMD, Mr. Shantanu Prakash from having to make an open offer in relation to an acquisition of 7.5% of the shareholding of Educomp. At the outset, we should look at the facts in this case which are quite peculiar - Educomp's CMD, Mr. Shantanu Prakash had pledged 91.8 lakh shares (7.5% of the  share capital) of Educomp as security with Macquarie against a loan of Rs 46 crores. Macquarie had invoked the pledge on account of fall in collateral cover and transferred the pledged shares in its name. However, Macquarie did not sell these shares and once the loan was re-paid in full, it sought to transfer the shares to Mr. Prakash. Mr. Prakash approached SEBI for an exemption from making an open offer under Regs 3(2) & 3(3) of the Takeover Regulations 2011. 

SEBI granted the requested exemption on the grounds that (a) the said acquisition will not result in a change of control/ management of Educomp, (b) there is no further payment of fresh consideration for the said acquisition and it is merely a return of shares pledged by the acquirer with the lender, (c) Educomp will continue to be in compliance with the minimum public shareholding requirements even pursuant to the said acquisition and (d) the proposed acquisition would not affect or prejudice the interests of the public shareholders of Educomp in any manner.

The order appears fairly logical keeping in mind that the Takeover Regulations 2011 generally exempts acquisitions of shares pursuant to invocations of pledges in the ordinary course of business, and also exempts certain acquisitions where there is no change in control.

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