The Securities and Exchange Board of India (“SEBI”) no longer considers an entity other than a scheduled commercial bank or an all India financial institution, as a “lender” for the purposes of an exemption from a mandatory open offer under Regulation 10(1)(i) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Code”). The rationale of SEBI’s approach and its analysis is summarily covered in this article.
The Takeover Code, prior to its amendment on 29 March 2019, conferred an exemption to a mandatory open offer for:
On 29 March 2019, SEBI issued the Securities and Exchange Board of India Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations, 2019 (“March Amendment”). The March Amendment deleted exemptions (a) and (b) above, and added a definition of “lenders” for the purposes of exemption (c) above as an ‘explanation’. The explanation reads, “For the purpose of this clause, “lenders” shall mean all scheduled commercial banks (excluding Regional Rural Banks) and All India Financial Institutions”.
There are two key takeaways from the March Amendment: (a) an acquirer subscribing to shares or purchasing shares from lenders, as a part of debt restructuring, must do a mandatory open offer, if the Takeover Code triggers are met; and (b) only scheduled commercial banks and all India financial institutions can convert their debt to equity without worrying about a mandatory open offer.
The rational described in the Agenda arguably does not seem to entirely compliment the March Amendment, on account of the following reasons:
Hopefully, after the issuance of the June 7 Circular by the RBI, SEBI may consider revisiting the March Amendment to restore the exemptions from open offer that were earlier available, in the best interest of all stakeholders.
Contributed by: Ambarish, Partner; Mihir Roy, Senior Associate
This is intended for general information purposes only. The views and opinions expressed in this article are those of the author/authors and does not necessarily reflect the views of the firm.
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