Sebi gives view on Orissa Sponge-BEL warrants conversion issue

Sebi has said Bhushan Energy converting 35 lakh warrants into shares of Orissa Sponge Iron and Steel "could not" result in the transfer of management in favour of Bhushan Energy.
This order has been passed following a directive from the Supreme Court in May 2012 where it had asked Sebi to look into whether conversion of 35 lakh warrants could result in transfer of management of Orissa Sponge and Steel Ltd (OSIL) in favour of Bhushan Energy Ltd (BEL).
In 2009, Bhushan Energy had purchased these warrants from Prakausali -- a Unitech Company.
"Near the date of purchase of these warrants, the other holdings of the Unitech Group have also been transferred to the Bhushan Group either in their own or in the name or in the name of hidden companies and persons with Bhushan's money," Sebi said.

In a 51-page order, Sebi Whole Time Member Prashant Saran has concluded that warrants' conversion by Bhushan Energy into equity shares "could not result" in transfer of Orissa Sponge's management in favour of the former entity.
TRFI group -- the promoter group of OSIL - had submitted that conversion of warrants would lead to over 53 per cent voting in favour of Bhushan Energy which in turn would result in management change.

The percentages (of voting) mentioned by the TRFI group are only to speculate regarding change of management, Sebi said.
Rejecting the contention of TRFI group, Sebi said the "Takeover Code does not recognise patterns in voting, for or against a resolution, in a meeting of shareholders of a company for determining whether a person is a PAC (Person Acting in Concert) or not of an acquirer".

"It should also be appreciated that past voting patterns are no indicators of future behaviour... If all the non-TRFI shareholders were to vote together, the present promoter group could lose its control over OSIL, even without the conversion of warrants in favour of Bhushan Energy. I, therefore, give no credence to this argument," Saran said in his order.
With regard to TRFI Group's allegations that Bhushan Group created a web of six companies, which are undisclosed PACs of the latter, Saran said that "Sebi may investigate" whether requisite disclosures were made or not.
"I am of the view that such opaque structure of web of companies do not provide any clarity as far as public shareholders are concerned and that Sebi may investigate whether the said companies/Bhushan Energy have allegedly failed to make disclosures, if any, under the Takeover Regulations or any other regulations," the order said.

Further, the order noted that allegations of money laundering appears to be in no way relevant to the issue of warrants' conversion.