Investors seek Sebi intervention after IHH delays open offer for Fortis

The Malaysian firm has said it won't proceed with the Rs 33-bn open offer in Fortis Healthcare

Minority shareholders have sought the Securities and Exchange Board of India's (Sebi's) intervention over IHH Healthcare's decision to delay the open offer in Fortis Healthcare. The Malaysian firm on Monday announced that it won't be able to proceed with the Rs 33 billion open offer following the Supreme Court's order to put on hold the sale of controlling stake in the Indian hospital chain.   

The mandatory open offer to buy an additional 26 per cent stake in Fortis Healthcare was to open for subscription on Tuesday and remain open till January 1. 

The apex court's order follows a contempt petition filed by Japanese firm Daiichi Sankyo in its dispute against the former promoters of Fortis Healthcare, Malvinder and Shivinder Singh. 

Sources say a group of investors has approached Sebi saying that the court order does not restrict the open offer the way it was being interpreted by IHH. 

"We believe that the court order in no way restricts the open offer, which is the legal requirement, and, incidentally, IHH has already acquired controlling stake in Fortis through subscription to preferential allotment," said one of the investors quoting the communique to Sebi. 

Further, both IHH and Fortis Healthcare are not the party to the SC order. Even Fortis Healthcare in an exchange filing has stated that the apex court order doesn't impact the preferential allotment made to IHH in November. 

"The open offer is between the IHH and the minority shareholders of Fortis and in no way affecting the sale of Fortis Healthcare to IHH as former is not the party in the open offer. In the interest of minority shareholders, the Sebi should direct IHH to continue with the open offer and direct them to pay interest if there is a delay," investors have written to Sebi.

On Monday, the Malaysian company, in its regulatory filing, clearly stated that it will not be able to proceed with the open offer for Fortis Healthcare for the time being. However, the said order does not impact IHH Healthcare's acquisition of 31.1 per cent stake in Fortis for Rs 40 billion that was completed on 13 November. 

"In light of the order, Northern TK Venture (a unit of IHH) and the PACs (persons acting in concert) will not be able to proceed with the Fortis open offer for the time being until further order(s)/ clarification(s)/ direction(s) are issued by the Supreme Court of India and/or the Securities and Exchange Board of India (Sebi)," the company said.

On the way forward, IHH said it is in the process of evaluating the SC order and seeking appropriate legal advice on this matter and will subsequently decide on the future course of action.

Experts feel that being a regulator, Sebi should intervene in the matter to protect the investor interest. 

"The Daiichi case was not against the company, it was against the Singh brothers. One hand where shareholders were already being kept in dark about the former promoter's misdeeds, now the uncertainty over the open offer will further hurt sentiment. Besides, the regulator should consider that the court order is applicable to the ownership and the assets of the individuals and not on a company as a whole," said J N Gupta, managing partner, Stakeholders Empowerment Services, a proxy firm.

According to Gupta, it is already stated by the companies that the said order does not impact the preferential offer that has been made to IHH, so, in that case, change of control has already happened and, therefore, provisions of takeover norms would apply, which triggers an open offer.

Sources say that the regulator is in wait and watch mode and awaiting more clarity on the order. If required, Sebi would seek legal assistance to decide further course of action, they added.  

The story so far

• On July 13, Malaysia’s IHH outbids Manipal-TPG to bag Fortis Healthcare
•  IHH offers to invest Rs 40 billion for a 31.1% stake in the healthcare chain
•  The transaction gets completed on November 13
• IHH announces plan to buy another 26% through an open offer
•  The open offer was to open from December 18 to January 1
• SC orders status quo with regard to sale of controlling stake in Fortis
• IHH announces that it won’t be able to proceed with the open offer