Tuesday, March 8, 2016

Change in Shareholding of Individual Promoter Triggers Takeover Code

[The following guest post is contributed by Supreme Waskar, who is a corporate lawyer]

In its interpretative letter dated March 01, 2016 under the SEBI (Informal Guidance) Scheme, 2003, in the matter of Capital Trust Limited (“CTL”), SEBI clarified the provisions of regulation 3(3) of the SEBI (Substantial Acquisition of Shares and Takeovers), Regulations, 2011 (“Takeover Code”).


Pursuant to sale of shares of CTL by its corporate promoter on July 21 and 28, 2015, the shareholding of the promoter group of CTL came down to 71.87% from 72.05%. However, the shareholding of the individual promoter in CTL increased by around 8% pursuant to subscription of shares of CTL by way of conversion of warrants on July 28, 2016.

Relevant Provisions of the Takeover Code

Regulations 3(1) & 3(2) of the Takeover Code restrict the shareholding of the promoter group from crossing the threshold limits prescribed thereunder without making a mandatory open offer. The aggregate shareholding of acquirer and persons acting in concert (“PAC”) is considered for determining a trigger of Regulations 3(1) and 3(2). In terms of Regulation 3(2), during a financial year the promoter group or individual promoter can acquire up to 5% of the share capital of the company without making an open offer.

Further, Regulation 3(3) of the Takeover Code clarifies that acquisition of shares by any person resulting in his individual shareholding exceeding the prescribed thresholds shall trigger open offer obligation irrespective of whether there is a change in the aggregate shareholding with PAC. This clarification is intended to negate the claim that the increase in individual shareholding / voting rights beyond a prescribed threshold should not trigger an open offer if the aggregate shareholding / voting rights of the acquirer and PAC do not exceed the threshold applicable to such aggregate shareholding / voting rights.

SEBI’s View

In terms of regulation 3(3) of the Takeover Code, a change in individual shareholding of an acquirer, irrespective of change in aggregate shareholding of the acquirer with PAC will attract regulation 3(2) and consequently will require compliance with the obligation to make an open offer.

As per the SEBI’s Interpretative Letter, since regulation 3(2) read with regulation 3(3) of the Takeover code was triggered upon an 8% increase in the shareholding of the individual promoter, CTL will be required to make a delayed open offer.

Offer Price and Interest on Delayed Open Offers

Since the Rhodia SA matter in 2000, SEBI follows the same principle for open offer price i.e. highest of open offer price derived based on reference dates:-  (i) the date of actual public announcement; or (ii) the date of violation, along with interest on the offer price from the date of violation till the date of actual payment of consideration to the shareholders on the date of violation and for the shares to be tendered in the open offer.

- Supreme Waskar

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