Sebi suspects share price foul play through open offers

Thinks most of them are aimed at influencing share price of listed firms

Suspecting foul play by promoters and other entities through frivolous open offers aimed at influencing share price of listed firms, market watchdog Sebi is working on safeguards against such practices.

The steps being mulled by the Securities and Exchange Board of India (Sebi) in this regard include tougher norms for withdrawal of offers at a later stage and even the delinking of offered price from the prevailing market rates, a senior official said.

In the event of entire takeovers or any significant purchase of shares by promoters or other large investors in listed companies, the regulations make it mandatory for the acquirer to make an open offer for purchase of additional shares from the public investors.

However, the open offer price is determined on the basis of average prevailing market price of the concerned company, while a spike is generally noticed in the share price in the run-up to the announcement of such offers and even after that in hopes that offer might be revised upward by the acquirer to get the desired amount of shares.

Sebi is of the view that promoters and other entities at times tend to use these open offers to jack up the share price and withdraw the same at a later stage, while citing insufficient response as an excuse, the official said.

At the same time, there is also a concern that open offers might trigger an unnatural spike in the share price of target companies by vested interests, especially in cases of takeovers as information flow starts much before the final announcement of the deal, he added.

As a safeguard mechanism, the market regulator is mulling over delinking the open offer price from the prevailing market rates and linking it entirely with the price agreed upon between the acquirer and sellers. However, any decision in this regard would require much more consultations, the official said.

With regard to 'frivolous' open offers, the Sebi board has already been apprised of the apprehension that some acquirers may use these offers as a means to influence the market price and subsequently, may attempt to withdraw the offer on the pretext that the subsequent acquisition was not successful.

In this regard, it has been proposed that such acquirer should not be allowed to withdraw the open offer on such grounds and certain deterrents be put in place for the acquirers in making frivolous offers to public shareholders.

Sebi had implemented a major overhaul of its takeover regulations in October 2011, while certain changes were made to these norms last month based on the experience gained from the market and to bring in more transparency for the benefit of public shareholders as well as the corporates.

The regulator may consider further changes to the takeover norms, based on feedback from investors and other entities.