[The following post is contributed by Yogesh Chande, who is a Consultant with Economic Laws Practice, Advocates & Solicitors. Views of the author are personal]
It may be recalled that, pursuant to an announcement issued by Fresenius Kabi Oncology Limited (target company) on 30 May 2012, the stock exchanges were informed that its promoter shareholders have notified the target company of their intention to undertake one or more “offer for sale” on the stock exchanges (OFS), in one or more tranches and thereby increase the public shareholding of the Company. Accordingly, pursuant to an OFS in October 2012, the promoters had divested 9% and as a result the promoter shareholding came down to 81%.
In view of certain developments, the promoters of the target company proposed a voluntary delisting of the target company. However, the target company was found to be non-compliant with the minimum public shareholding norms as on the date of the interim order dated 4 June 2013 (interim order) that was issued to a number of companies who had failed to comply with those norms (discussed here). Pursuant to the interim order, the target company had filed an appeal challenging the interim order before the Securities Appellate Tribunal (SAT). SAT directed the target company to approach SEBI and SEBI was directed to take the decision within a period of four weeks.
SEBI’s whole time member, pursuant to an order dated 22 July 2013 (Order), has now permitted the promoters of the target company to proceed with the delisting, subject to the condition that, the pre-OFS promoter shareholding [90% and not 81%] be considered for computing the percentages under regulation 17 of the SEBI (Delisting of Equity Shares) Regulations, 2009 (Delisting Regulations) to determine whether the delisting is successful.
In view of the above, the promoters of the target company will have to thus acquire 50% of 10% [based on pre-OFS shareholding of 90%] to delist the target company, which will increase the promoter shareholding post delisting to 86% i.e. 81% plus 5%, but excluding the 9% shares which were diluted in the OFS. To put it in simple terms, but for the Allegations [mentioned below in the subsequent paragraph], at 81% promoter shareholding [post OFS], to delist the target company the promoter should have otherwise acquired additional 9.5% [50% of 19% public shareholding] and reached up to 90.50%, including the shares which were sold in the OFS.
The rationale to not delist the target company based on the promoter shareholding [after OFS] at 81% i.e. to exclude those shares which have been sold by the promoters in the OFS as per para 11 of the Order is that SEBI had received complaints from investors alleging that the entities who purchased shares in the OFS may have participated in the OFS with an intent to subsequently tender their shares at an artificial price in the bids for the delisting offer, which will be in collusion with the promoters of the target company, and thus enable the promoters to successfully delist the target company (Allegations). The Order, however does not go into the analysis of whether the Allegations referred to in para 11 of the Order were merely allegations or otherwise. The Order also does not appear to contain any directive to investigate the Allegations. In this regard, it may be noted that, in terms of regulation 4(5) of the Delisting Regulations, a promoter or a person is, inter alia, prohibited from employing any device, scheme etc. to defraud any shareholder or other person or engage in any act or practice that is fraudulent, deceptive or manipulative in connection with any delisting sought.
Be that as it may, the Order and more particularly the observations made in para 10 of the Order may bring some relief also for other companies which have been found to be non-compliant with the minimum public shareholding norms as on the date of the interim order, provided those companies have also taken steps which demonstrates their intention to comply with the minimum public shareholding requirement prior to the date of the interim order, subject to them having made representation and filed their replies within a period of twenty one days as prescribed in para 21 of the interim order.