Funding Disclosure Rules Tightened For Corporate Raiders
The Securities and Exchange Board of India has tightened disclosure requirements for corporate raiders, making it mandatory for them to divulge their source of funds.
The takeover code now enjoins the acquirer or raider to reveal whether the funds (if they are not out of internal accruals) have come from domestic or foreign sources. The raider will also have to disclose whether the funds are coming from a non-resident Indian.
The domestic sources would cover bank and financial institution funding of takeovers apart from internal generation. The foreign sources would cover NRI funding and money provided by foreign banks, Sebi officials said. If, for instance, it is found that an NRI has pumped in Rs 100 crore to fund a takeover, Sebi will then determine whether that violates the total NRI investment limits permitted for companies.
The new requirements which have been woven into the code without any publicity will enable the market regulator to effectively track the people or entities which are behind a takeover raid. The takeover code itself calls for the raiders or acquirers to disclose their sources of funding. The latest Sebi move clearly spells out the disclosures required. This could make it even more difficult for raiders to stalk a company and ought to provide a greater degree of comfort to companies which are potential takeover targets.
Top-level sources in Sebi confirmed the insertion of these requirements and said these would help other investigating agencies also to track the stealthy predators. The exact quantum of foreign funds flowing in has to be disclosed by the acquirer, the Sebi official said.
Even if we dont know who actually controls these funds, it will still be possible to broadly find out where the money is coming from. This can then be communicated to the other investigating agencies, if necessary, the Sebi official said.
He said this would make it difficult for unaccounted funds to be channelled into the takeover game, and reveal the overall gameplan of the acquirer. If an Indian raider has a family member or an associate abroad who is lending him large amounts of money, the fact that his money is coming from outside has to be clearly disclosed. The other investigating agencies can then catch on from there, the official explained.
Sebi chairman D R Mehta has already made it clear that the corporates were unnecesarily making an issue of the takeover code. According to Sebi, the fears of the Indian corporate sector about takeover attempts by multinationals were totally unfounded since none of these would go through without clearance from the Foreign Investment Promotion Board (FIPB).