Amendment in SEBI (SAST) Regulations, 2011

Vide notification dated March 26, 2013, SEBI has made the following amendments in SEBI (SAST) Regulations, 2011 considering the observation raised during the implementation of Regulations since their notification:

• Clarification on reckoning the period of ninety days in case of increase of voting rights due to buyback by Target Company.

Prior to the present amendment, if the voting rights of a shareholder go beyond the prescribed threshold limit on account of buyback by the target company, the open offer requirement will not be triggered if voting rights are brought below the threshold limit within ninety days from the date on which the voting rights so increase.

However, if the voting rights are not reduced below the level at which the requirement of Open Offer was triggered, then the public announcement is to be made not later than ninetieth day from the date of such increase in the voting rights beyond the relevant threshold.

Through this amendment, it has now been clarified that the period of ninety days will be reckoned from the date of closure of the buyback offer.

Regulation 10(3), 10(4)(C) and 13(2)(h) after amendment would read as follows:

10(3) An increase in voting rights in a target company of any shareholder beyond the limit attracting an obligation to make an open offer under sub-regulation (1) of regulation 3, pursuant to buy-back of shares by the target Company shall be exempt from the obligation to make an open offer provided such shareholder reduces his shareholding such that his voting rights fall to below the threshold referred to in sub-regulation (1) of regulation 3 within ninety days from the date of the closure of the said buy-back offer.

Second Proviso to Regulation 10(4)(c)

Provided further that where the aforesaid conditions are not met, in the event such shareholder reduces his shareholding such that his voting rights fall below the level at which the obligation to make an open offer would be attracted under sub-regulation (2) of regulation 3, within ninety days from the date of closure of the buy-back offer by the target company, the shareholder shall be exempt from the obligation to make an open offer;

13(2)(h) the public announcement pursuant to an increase in voting rights consequential to a buy-back not qualifying for exemption under regulation 10, shall be made not later than the ninetieth day from the date of closure of the buy-back offer by the target company;

• Relevant date for making Public Announcement in case of preferential allotment.

Prior to the present amendment, Regulation 13(2) (g) of SEBI (SAST) Regulations, 2011 provides that if the open offer obligation is triggered pursuant to the allotment of shares on preferential basis, then Public Announcement shall be made on the date on which special resolution is passed for allotment of shares under sub-section (1A) of section 81 of the Companies Act, 1956.

However as the information about the impending preferential allotment comes into the public domain on the date of the Board Resolution which authorizes the preferential allotment and the market price gets adjusted or may even rise which exposes the transaction to market risks. Therefore, it has been decided that the date of board resolution authorizing the preferential allotment shall be the relevant date for the purpose of triggering open offer obligations instead of the date on which special resolution is passed under Section 81(1A) of the Companies Act, 1956.

"Acquisition of shares or voting rights through Preferential Allotment

u/s 81(1A) of Companies Act, 1956 triggering Open Offer

under SEBI (SAST) Regulations, 2011

Regulation 13(2)(g) after amendment would read as follows:

Pursuant to an acquirer acquiring shares or voting rights in, or control over the target company, under preferential issue, shall be made on the date on which the board of directors of the target company authorizes such preferential issue.

• Relevant date for making public announcement in case of combined modes of acquisition

Prior to the present notification of amendment, SEBI (SAST) Regulations, 2011 are not clear as to the relevant date for making public announcement in cases of combined modes of acquisition. For instance, in case of Acquirer entering into Share Subscription and Share Purchase Agreement that provides for acquisition of stake from the promoters as well as preferential allotment of shares by the Target Company wherein preferential allotment would take place after one month, what would be the relevant date because if both the event have executed separately, then each of them would result into triggering of Open Offer obligations.

Accordingly, now a subregulation 2A has been inserted in Regulation 13 that provides that where the open offer obligation is triggered pursuant to an agreement or otherwise in combination of any modes of acquisition, the ‘relevant date’ for making the Public Announcement shall be the earliest date on which obligation is triggered.

Newly inserted Regulation 13(2A):

Notwithstanding anything contained in sub-regulation (2), a public announcement referred to in regulation 3 and regulation 4 for a proposed acquisition of shares or voting rights in or control over the target company through a combination of,-

(i) an agreement and any one or more modes of acquisition referred to in sub-regulation (2) of regulation 13, or

(ii) any one or more modes of acquisition referred in clause (a) to (i) of sub-regulation (2) of regulation 13,

shall be made on the date of first such acquisition, provided the acquirer discloses in the public announcement the details of the proposed subsequent acquisition.

• Norms for completion of acquisition through preferential allotment and stock exchange settlement process.

Prior to amendment, Regulation 22 of SEBI (SAST) Regulations, 2011 does not allows the completion of acquisition of shares or voting rights which triggers the open offer obligation until the expiry of the offer period. But such acquisition can be completed after the expiry of 21 working days from the date of the detailed public statement, provided the acquirer deposits 100 percent of the consideration payable in cash in the escrow account. The regulations also allowed purchase of shares from stock exchange which required to be completed within two days as per settlement process, thus creating an anomalous situation.

Accordingly, now a subregulation 2A has been inserted in Regulation 22 that provides an acquirer may acquire shares of the target company through preferential issue or through the stock exchange settlement process, other than through bulk deals or block deals, subject to such shares being kept in an escrow account and the acquirer not exercising any voting rights over such shares kept in the escrow account. Further, these shares can be transferred from the escrow account to the name of the acquirer after the expiry of 21 working days from the date of the detailed public statement, provided the acquirer deposits 100 percent of the consideration payable in cash in the escrow account.

Newly inserted Regulation 22(2A):

Notwithstanding anything contained in sub-regulation (1), an acquirer may acquire shares of the target company through preferential issue or through the stock exchange settlement process, other than through bulk deals or block deals, subject to,-

(i) such shares being kept in an escrow account,

(ii) the acquirer not exercising any voting rights over such shares kept in the escrow account:

Provided that such shares may be transferred to the account of the acquirer, subject to the acquirer complying with requirements specified in sub-regulation (2)."

Withdrawal of Open Offer not allowed where the proposed acquisition through the preferential issue is not successful.

Where the Open Offer is made pursuant to the proposed acquisition of shares through preferential allotment, the Acquirer will not be allowed to withdraw the Open Offer where the proposed acquisition through the preferential issue is not successful.

Newly inserted proviso to Regulation 23(1)(c):

Provided that an acquirer shall not withdraw an open offer pursuant to a public announcement made under clause (g) of sub-regulation (2) of regulation 13, even if the proposed acquisition through the preferential issue is not successful.

Amendment in Disclosure requirements under SEBI (SAST) Regulations, 2011. 

The change of 2% would be calculated from the last disclosure made by the Acquirer;

The disclosure in respect of change in shareholding is required to be given even if the shareholding of acquirer falls below 5%.

Regulation 29(2) after amendment would read as follows:

Any person, who together with persons acting in concert with him, holds shares or voting rights entitling them to five per cent or more of the shares or voting rights in a target company, shall disclose the number of shares or voting rights held and change in shareholding or voting rights, even if such change results in shareholding falling below five per cent, if there has been change in such holdings from the last disclosure made under sub-regulation (1) or under this sub-regulation; and such change exceeds two per cent of total shareholding or voting rights in the target company, in such form as may be specified.

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Amendment Dated 26-03-2013

Prepared by: Ms. Ruchi Hans

For any professional query, please contact:
Ms. Divya Vijay
+911140622248,

Email:-divya@indiacp.com