GENERAL MANAGER
CORPORATION FINANCE DEPARTMENT
DIVISION OF CORPORATE RESTRUCTURING
Tel. (Board) : 22850451-56, 22880962-70
Fax : 22829520
CFD/DCR/AK/IG/ 60950/2006
February 22, 2006
Nagreeka Exports Limited,
7, Kala Bhavan,
3, Mathew Road,
Mumbai – 400 004.
Dear Sir,
Sub.:- Request for Informal Guidance under Securities and Exchange Board of India (Informal Guidance) Scheme, 2003.
Ref : Your letters dated 09.01. 2006 , 13.01.2006 and 17.01.06
1.0 Please refer to your letters cited above seeking interpretive letter under the SEBI (Informal Guidance) Scheme, 2003. The interpretive letter is sought on the issue whether the issuance of warrants by Nagreeka Exports Limited ( the company) to its promoters and conversion of such warrants into equity shares as represented in your letters under reference, will trigger regulations 10 and 11 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulation, 1997( Takeover Regulations).
2.0 It is, inter-alia, informed by you vide your letter dated 09.01.06 that-
(i) Present paid up capital of the company is Rs.9.71 Crores comprising of 97,10,000 equity shares of Rs.10/- each.
(ii) Present holding of promoters is 41.9549% comprising of 40,73,818 equity shares of Rs.10/- each.
(iii)The company wish to issue 28,00,000 warrants to the promoters.
(iv)These warrants will be converted as under : -
a) 9,00,000 Warrant will be converted into 9,00,000 equity shares of Rs.10/ each on or before the financial year ended on 31.03.2006 whereby promoters will hold 49,73,818 Equity Shares representing 46.8786% of total Equity (an increase of 4.9237% on account of conversion of warrants into equity).
b) 9,00,000 warrant will be converted into 9,00,000 equity shares of Rs.10/ each on or before the financial year ended on 31.03.2007 whereby promoters will hold 58,73,818 equity shares representing 51.0323% of total equity (an increase of 4.1537% on account of conversion of warrants into equity).
c) 10,00,000 Warrants will be converted into 10,00,000 equity shares of Rs.10/ each on or before 09.07.2007 (which is within 18 months from the date of allotment) whereby promoters will hold 67,73,818 equity shares representing 54.5835% of total equity (an increase of 3.5512% on account of conversion of warrants into equity).
d) Total holding of promoters will be 54.9466% after total conversion of warrants into equity shares.
3.0 Without necessarily agreeing with your analysis, our views on the proposed transactions as mentioned in para 2.0 above are as under -
(i) Regulations 10 and 11 of the Takeover Regulations are triggered by acquisition of shares entitling the acquirer to exercise voting rights beyond the threshold limits specified in the said regulations. In case of an acquisition of convertible securities such as warrants which would entitle the acquirer to exercise voting rights, exceeding the threshold limit specified in regulation 10 or 11, the regulations are triggered on conversion of warrants, or exercise of option, as the case may whereby the acquirer acquires voting rights on such convertible securities. Therefore, at the time of issue of warrants by the company, regulations will not be triggered.
(ii) At the time of conversion of warrants into equity shares, which would entitle the promoters to exercise additional voting rights, the regulations as prevalent on that date would apply.
(iii) Regulation 10 of the Takeover Regulations applies in case of acquisition of shares or voting rights which taken together with shares or voting rights, if any, held by the acquirer or by persons acting in concert with him, entitle such acquirer to exercise 15% or more of the voting rights in a target company. Where the shareholding of the promoters is already more than 15%, this regulation will not be triggered by acquisition of additional shares by such promoters. In your case, the promoters’ share holding in the company is stated to be 41.95%. Therefore, if at the time of conversion of warrants into equity shares by promoters of the company, regulation 10 as it exists today prevails, it will not apply to said acquisition of additional equity shares.
(iv) As per regulation 11(1) of the Takeover Regulations, no acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law, 15 per cent or more but less than fifty five per cent.55% of the shares or voting rights in a company, shall acquire, either by himself or through or with persons acting in concert with him, additional shares or voting rights entitling him to exercise more than 5% of the voting rights, in any financial year ending on 31st March, unless such acquirer makes a public announcement to acquire shares in accordance with the Regulations. On perusal of your letters, we understand that pursuant to the conversion of warrants, the promoters would acquire less than 5% equity shares in the company in each of the financial years ending on March 31, 2006, March 31, 2007 and March 31, 2008. In view of this, if at the time of conversion of warrants into equity shares by promoters of the company regulation 11(1) as it exists today prevails, the public announcement as required under this regulation would not be required as the acquisition of additional shares will be within the creeping limit of 5%.
5.0 This position is based on the representation made to the Division in your letter 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 Takeover Regulations 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