Sebi mulls exempting govt from open offer obligation

The regulator might also relax creeping acquisition rules

regulator Securities and Exchange Board of India (Sebi) is planning to introduce a set of for the government that will be different from what private companies follow.

The proposal, on the drawing board, intends to exempt the government from making the mandatory open offer to buy an additional 26 per cent from minority shareholders if its stake in a company crosses 25 per cent.

The move comes in the wake of a recent instance where the government was exempted from making an open offer in financial institution Ltd, after its holding in the firm jumped from a marginal 0.0000011 per cent to 55.57 per cent, following conversion of warrants into shares in September.
 

SPECIAL TREATMENT
Instances when market regulator Securities and Exchange Board of India (Sebi) had to exempt the government from open offer obligation
  • IFCI (September 24, 2012): The conversion of debentures worth Rs 923 crore had led to the government’s stake going up from 0.0000011% to 55.57%, resulting in acquiring control of IFCI
  • (March 26, 2012): Conversion of Tier-I bonds increased the government’s shareholding from 65.13% to 70.73%, breaching the creeping acquisition limit of 5%
  • Hindustan Copper (October 1, 2004): Issuances of equity shares worth Rs 365 crore to the government had led to an increase in government’s shareholding from 98.95% to 99.48%

“Although IFCI was a genuine case for exemption, we are looking whether we can have specific exemptions for the government under the (Takeover Code) Regulations,” said a senior official, requesting anonymity. He said the proposal was at a nascent stage and the contours of the rules were being discussed.

Sebi might also tweak rules for the government in cases of creeping acquisition, where buyers have to make an open offer it they purchase more than five per cent in a company in a financial year

In March, the regulator had exempted the government from making an open offer for IDBI Bank Ltd, when a proposed into the bank crossed the creeping acquisition limit of five per cent.

Sebi had introduced the new takeover code last year, increasing the open offer trigger limit from 15 per cent to 25 per cent. Also, it raised the minimum open offer required to be made by the acquirer to 26 per cent from 20 per cent.

Securities lawyers said a different set of laws for government companies would be detrimental to the interests of minority shareholders, though rules allow Sebi to do so.

“One objective of governance through regulators is to provide a level-playing field to both government participants and non-government participants. Preferential treatment to the government as acquirers under the takeover code would distort the level-playing field, which is already distorted on many other counts,” said M S Sahoo, a former whole-time member of Sebi and a lawyer.

The rationale behind the open offer obligation, which in some countries is as high as 100 per cent, is to give an opportunity to the minority shareholders to exit if they don't wish to continue with the new management in case of change in control.

Pavan Vijay, founder of corporate services provider Corporate Professionals, said: “In my view, giving automatic exemption to the government will not be justified from the point of view of minority shareholders. They should be given the opportunity to exit whenever there is an acquisition of shares of a listed company beyond the specific threshold, whether the said acquisition is by the government or by private parties.”

Lawyers said securities laws in the country are already partly distorted in certain cases. One is that the minimum public shareholding requirement for a public sector undertaking is much lower at 10 per cent than that for private sector companies, which is 25 per cent.

image
Business Standard
177 22
Business Standard

Sebi mulls exempting govt from open offer obligation

The regulator might also relax creeping acquisition rules

Samie Modak  |  Mumbai 



regulator Securities and Exchange Board of India (Sebi) is planning to introduce a set of for the government that will be different from what private companies follow.

The proposal, on the drawing board, intends to exempt the government from making the mandatory open offer to buy an additional 26 per cent from minority shareholders if its stake in a company crosses 25 per cent.

The move comes in the wake of a recent instance where the government was exempted from making an open offer in financial institution Ltd, after its holding in the firm jumped from a marginal 0.0000011 per cent to 55.57 per cent, following conversion of warrants into shares in September.
 

SPECIAL TREATMENT
Instances when market regulator Securities and Exchange Board of India (Sebi) had to exempt the government from open offer obligation
  • IFCI (September 24, 2012): The conversion of debentures worth Rs 923 crore had led to the government’s stake going up from 0.0000011% to 55.57%, resulting in acquiring control of IFCI
  • (March 26, 2012): Conversion of Tier-I bonds increased the government’s shareholding from 65.13% to 70.73%, breaching the creeping acquisition limit of 5%
  • Hindustan Copper (October 1, 2004): Issuances of equity shares worth Rs 365 crore to the government had led to an increase in government’s shareholding from 98.95% to 99.48%

“Although IFCI was a genuine case for exemption, we are looking whether we can have specific exemptions for the government under the (Takeover Code) Regulations,” said a senior official, requesting anonymity. He said the proposal was at a nascent stage and the contours of the rules were being discussed.

Sebi might also tweak rules for the government in cases of creeping acquisition, where buyers have to make an open offer it they purchase more than five per cent in a company in a financial year

In March, the regulator had exempted the government from making an open offer for IDBI Bank Ltd, when a proposed into the bank crossed the creeping acquisition limit of five per cent.

Sebi had introduced the new takeover code last year, increasing the open offer trigger limit from 15 per cent to 25 per cent. Also, it raised the minimum open offer required to be made by the acquirer to 26 per cent from 20 per cent.

Securities lawyers said a different set of laws for government companies would be detrimental to the interests of minority shareholders, though rules allow Sebi to do so.

“One objective of governance through regulators is to provide a level-playing field to both government participants and non-government participants. Preferential treatment to the government as acquirers under the takeover code would distort the level-playing field, which is already distorted on many other counts,” said M S Sahoo, a former whole-time member of Sebi and a lawyer.

The rationale behind the open offer obligation, which in some countries is as high as 100 per cent, is to give an opportunity to the minority shareholders to exit if they don't wish to continue with the new management in case of change in control.

Pavan Vijay, founder of corporate services provider Corporate Professionals, said: “In my view, giving automatic exemption to the government will not be justified from the point of view of minority shareholders. They should be given the opportunity to exit whenever there is an acquisition of shares of a listed company beyond the specific threshold, whether the said acquisition is by the government or by private parties.”

Lawyers said securities laws in the country are already partly distorted in certain cases. One is that the minimum public shareholding requirement for a public sector undertaking is much lower at 10 per cent than that for private sector companies, which is 25 per cent.

RECOMMENDED FOR YOU

Sebi mulls exempting govt from open offer obligation

The regulator might also relax creeping acquisition rules

Markets regulator Securities and Exchange Board of India (Sebi) is planning to introduce a set of takeover rules for the government that will be different from what private companies follow.

regulator Securities and Exchange Board of India (Sebi) is planning to introduce a set of for the government that will be different from what private companies follow.

The proposal, on the drawing board, intends to exempt the government from making the mandatory open offer to buy an additional 26 per cent from minority shareholders if its stake in a company crosses 25 per cent.

The move comes in the wake of a recent instance where the government was exempted from making an open offer in financial institution Ltd, after its holding in the firm jumped from a marginal 0.0000011 per cent to 55.57 per cent, following conversion of warrants into shares in September.
 

SPECIAL TREATMENT
Instances when market regulator Securities and Exchange Board of India (Sebi) had to exempt the government from open offer obligation
  • IFCI (September 24, 2012): The conversion of debentures worth Rs 923 crore had led to the government’s stake going up from 0.0000011% to 55.57%, resulting in acquiring control of IFCI
  • (March 26, 2012): Conversion of Tier-I bonds increased the government’s shareholding from 65.13% to 70.73%, breaching the creeping acquisition limit of 5%
  • Hindustan Copper (October 1, 2004): Issuances of equity shares worth Rs 365 crore to the government had led to an increase in government’s shareholding from 98.95% to 99.48%

“Although IFCI was a genuine case for exemption, we are looking whether we can have specific exemptions for the government under the (Takeover Code) Regulations,” said a senior official, requesting anonymity. He said the proposal was at a nascent stage and the contours of the rules were being discussed.

Sebi might also tweak rules for the government in cases of creeping acquisition, where buyers have to make an open offer it they purchase more than five per cent in a company in a financial year

In March, the regulator had exempted the government from making an open offer for IDBI Bank Ltd, when a proposed into the bank crossed the creeping acquisition limit of five per cent.

Sebi had introduced the new takeover code last year, increasing the open offer trigger limit from 15 per cent to 25 per cent. Also, it raised the minimum open offer required to be made by the acquirer to 26 per cent from 20 per cent.

Securities lawyers said a different set of laws for government companies would be detrimental to the interests of minority shareholders, though rules allow Sebi to do so.

“One objective of governance through regulators is to provide a level-playing field to both government participants and non-government participants. Preferential treatment to the government as acquirers under the takeover code would distort the level-playing field, which is already distorted on many other counts,” said M S Sahoo, a former whole-time member of Sebi and a lawyer.

The rationale behind the open offer obligation, which in some countries is as high as 100 per cent, is to give an opportunity to the minority shareholders to exit if they don't wish to continue with the new management in case of change in control.

Pavan Vijay, founder of corporate services provider Corporate Professionals, said: “In my view, giving automatic exemption to the government will not be justified from the point of view of minority shareholders. They should be given the opportunity to exit whenever there is an acquisition of shares of a listed company beyond the specific threshold, whether the said acquisition is by the government or by private parties.”

Lawyers said securities laws in the country are already partly distorted in certain cases. One is that the minimum public shareholding requirement for a public sector undertaking is much lower at 10 per cent than that for private sector companies, which is 25 per cent.

image
Business Standard
177 22

LIVE MARKET

BSE

  ( %)

NSE

  ( %)

More News

  • Stocks see second weekly fall as Fed rate hikes odds rise
  • Raghuram Rajan, RBI RBI wants to liberalise while strengthening bond markets: Rajan

STOCK WATCH

Company Price() Chg(%)
Trident 56.00 12.45
VST Inds. 2296.20 10.12
GRUH Finance 345.20 9.33
J B Chem & Pharm 336.60 7.90
Century Textiles 709.85 5.92
> More on BSE Gainers
Company Price() Chg(%)
Trident 56.45 13.13
Future Lifestyle 137.65 10.92
GRUH Finance 346.05 9.46
VST Inds. 2284.90 9.22
J B Chem & Pharm 336.50 7.71
> More on NSE Gainers
Company Price() Chg(%)
Welspun India 49.70 -8.64
Shilpa Medicare 553.00 -7.82
Piramal Enterp. 1851.10 -5.41
Jaypee Infratec. 9.21 -4.76
Avanti Feeds 534.10 -4.20
> More on BSE Gainers
Company Price() Chg(%)
Welspun India 49.40 -8.60
Shilpa Medicare 551.70 -7.87
IDBI Bank 70.45 -6.38
Jaypee Infratec. 9.10 -5.70
Piramal Enterp. 1847.10 -5.48
> More on NSE Gainers
Widgets Magazine
Widgets Magazine
Widgets Magazine

Derivatives

Index
Instrument Type
Expiry Date
Option Type
Strike Price

Upgrade To Premium Services

Welcome User

Business Standard is happy to inform you of the launch of "Business Standard Premium Services"

As a premium subscriber you get an across device unfettered access to a range of services which include:

  • Access Exclusive content - articles, features & opinion pieces
  • Weekly Industry/Genre specific newsletters - Choose multiple industries/genres
  • Access to 17 plus years of content archives
  • Set Stock price alerts for your portfolio and watch list and get them delivered to your e-mail box
  • End of day news alerts on 5 companies (via email)
  • NEW: Get seamless access to WSJ.com at a great price. No additional sign-up required.
 

Premium Services

In Partnership with

 

Dear Guest,

 

Welcome to the premium services of Business Standard brought to you courtesy FIS.
Kindly visit the Manage my subscription page to discover the benefits of this programme.

Enjoy Reading!
Team Business Standard