Thursday, July 18, 2013

Takeover Exemption: Inter Se Transfer Among Promoters

A few months ago, we had discussed certain orders passed by SEBI that exempted parties from mandatory open offers in certain specific circumstances.

Recently, SEBI passed an exemption order in a transfer involving the shares of GMR Infrastructure Limited (the target company). In this case, 70.3% of the shares of the target company are held by GMR Holdings Private Limited (GHPL). GHPL is in turn held nearly 100% by Mr. G.M. Rao. The proposed transaction involves a settlement by way of gift of the shares held by Mr. G.M. Rao in GHPL to several family trusts. This would result in an indirect transfer of shares/control in the target company, and thereby trigger a mandatory offer requirement under regulation 3(1) of the SEBI Takeover Regulations, 2011 (as there is a transfer of more than 25% shares).

Based on an application made by the promoters and detailed reasoning set out in the application, SEBI granted an exemption order. This is because the transaction was merely a family arrangement involving a restructuring of shareholding and did not necessary result in a change in control of the underlying company. The transferor as well as the transferees are also part of the promoter and promoter group of the target company.

Based on the facts set out in SEBI’s order, it appears to be a valid case for grant of exemption since there is no change of control in substance that requires invocation of the mandatory offer requirement.

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