GENERAL MANAGER
CORPORATION FINANCE DEPARTMENT
DIVISION OF CORPORATE RESTRUCTURING
Tel. (Board) : 22850451-56, 22880962-70
Fax : 22829520
CFD/DCR/AK/IG/65180/2006
April 20, 2006
Indian Overseas Bank,
Maker Towers “E”- V Floor,
Cuffe Parade,
Mumbai – 400 005.
Dear Sir,
Sub.:- Request for Informal Guidance under Securities and Exchange Board of India (Informal Guidance) Scheme, 2003.
Ref: Your letters dated 20/02/2006, 21/02/2006, 25/03/2006 & 04/04/2006
1.0 Please refer to your letters cited above seeking interpretive letter under the SEBI (Informal Guidance) Scheme, 2003.
2.0 It is, inter-alia, informed by you, vide your letters under reference that –
(a) The Indian Overseas Bank (hereinafter referred to as IOB) a listed entity, is a Nationalised Bank governed by provisions of The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970.
(b) Bharat Overseas Bank Ltd. (hereinafter referred to as ‘BhOB’) an unlisted entity is a bank incorporated under the Companies Act, 1956 and is governed by the Banking Regulations Act, 1949.
(c) IOB is holding 30% share in BhOB and the balance 70% shareholding in BhOB is held by six other banks in the private sector.
(d) IOB is proposing to acquire the 70% shareholding of BhOB from these six private sector banks.
(e) Thereafter, BhOB will become 100% owned subsidiary of IOB. All the six banks holding the shares of BhOB have given their consent to sell their shares to IOB.
(f) IOB has issued necessary notice to the stock exchange under the listing agreement and got the proposal for purchase of shares duly approved by the Board of Directors.
(g) IOB is in the process of obtaining necessary approvals for the above transaction in terms of section 19(2) of the Banking Regulation Act 1949 and other guidelines from the Reserve Bank of India (RBI) / Govt. of India. On obtaining the approval from RBI/GOI, IOB would acquire the above mentioned shares of BhOB and hold them in the investment portfolio of the bank. In due course, on obtaining necessary clearance, including overseas regulators, IOB would consider merger of the two entities, IOB & BhOB.
(h) In this process it is envisaged that there will not be any change in the share capital of IOB.
(i) Entire 70% share holding of BhOB held by 6 private banks is being acquired by cash payment.
3.0 In light of your aforesaid submissions, you have sought informal guidance on the following:-
(i) Whether the proposed acquisition of 70% of shares as mentioned above will trigger any of the Regulations 3, 10, 11 & 12 of the SEBI (Substantial acquisition of shares and Takeover) Regulation, 1997 as amended from time to time and;
(ii) Whether Chapter XIII of the SEBI (Disclosure and Investor Protection Guidelines), 2000 as amended from time to time, will apply on the proposed acquisition.
4.0 Our views on the proposed transaction as submitted by you vide your letters referred above are as under:-
A. Regarding the query at 3.0 (i)
i). SEBI (Substantial acquisition of shares and Takeover) Regulations, 1997 (Takeover Regulations) are applicable to the acquisition of shares of a target company. In terms of regulation 2(1)(o) of the Takeover Regulations ‘target company’ means a listed company whose shares or voting rights or control is directly or indirectly acquired or is being acquired. Further, as per Regulation 3(1)(k) of the Takeover Regulations, nothing contained in Regulations 10, 11 and 12 shall apply to acquisition of shares in companies whose shares are not listed on any stock exchange.
ii). In the case represented in your letters, the IOB is proposing to acquire shares of BhOB, an unlisted entity. In view of the above, the provisions of the Takeover Regulations shall not apply to the proposed acquisition of 70% shares of BhOB by IOB from six private sector banks.
B. Regarding query mentioned at 3.0(ii)
i) The provisions of Chapter III of SEBI (Disclosure and Investor Protection) Guidelines 2000, are applicable to preferential issue of equity shares/ fully convertible debentures/ partly convertible debentures or any other financial instruments which would be converted into or exchanged with equity shares at a later date, by listed companies to any select group of persons under section 81(1A) of the Companies Act, 1956 on private placement basis.
ii) In the present matter, the 70% share holding in BhOB (an unlisted entity) held by 6 private sector Banks is proposed to be acquired by IOB against cash payment and there is no issue of any shares by IOB to any person on a private placement basis. Therefore, the above guidelines relating to the preferential allotment shall not apply to the proposed acquisition of the shares of BhOB by IOB.
5.0 This position is based on the representation made to the Division in your letters under reference. Different facts or conditions might require a different result. This letter does not express decision of the Board on the questions referred.
6.0 Please note that this position is only with respect to applicability of the Takeover Regulations and the Guidelines for Preferential issues as contained in Chapter XIII of the SEBI (Disclosure and Investor Protection) Guidelines 2000 and does not affect applicability of any law and other SEBI Regulations, Guidelines and circulars administered by SEBI or any other authority.
Yours faithfully,
S.V. Murali Dhar Rao