GENERAL MANAGER
CORPORATION FINANCE DEPARTMENT
DIVISION OF CORPORATE RESTRUCTURING
Tel. (Board): 22850451-56, 22880962-70
Email: mdrao@sebi.gov.in , Fax: 22829520
CFD/DCR/AK/IG/11583/2004
June 02, 2004
Allianz Securities Limited,
B-1, Emca House,
289, Shahid Bhagat Singh Road,
Fort, Mumbai – 400 001.
Dear Sir,
Sub.:- Interpretive letter under Securities and Exchange Board of India (Informal Guidance) Scheme, 2003 in respect of issuance of shares on preferential basis.
This has reference to your letter dated 14/04/04, requesting for Informal Guidance (interpretive letter) under Securities and Exchange Board of India (Informal Guidance) Scheme, 2003.
Facts represented by you:
The representations made in your letter are in brief as follows:
Allianz Securities Limited (the Company) is a Public Company duly incorporated under the Companies Act, 1956 and the Equity Shares of the Company are listed with the BSE & DSE. The equity capital of the Company at present is as under:
|
Sr.No.
|
|
Details
|
|
No. of shares
|
|
%age of holding
|
|
|
1.
|
|
Promoters
|
|
48,65,700
|
|
45.84%
|
|
|
2.
|
|
Mutual Funds & UTI
|
|
49,100
|
|
0.46%
|
|
|
3.
|
|
Private Corporate Bodies
|
|
17,58,700
|
|
16.58%
|
|
|
4.
|
|
NRIs/ OCBs
|
|
1,87,300
|
|
1.77%
|
|
|
5.
|
|
Indian Public
|
|
37,52,300
|
|
35.35%
|
|
| |
|
TOTAL
|
|
10613100
|
|
100.00%
|
|
The Company now proposes to issue 15,91,965 equity shares (15% of the present equity capital) on a preferential basis as under:
- 5% to Promoters (under creeping acquisition)
- 10% to Other than Promoters
You had also represented that the private corporate bodies to whom 10% of pre-issue capital is proposed to be allotted –
- are presently not holding any shares in the company;
- individually will be holding less than 5% of the post issue paid up capital of the company;
- are not related or connected with each other as per the SEBI (SAST) Regulations; and
- are not related or connected with the promoters of the company.
- Book-Value of the Share is Rs. 6.08 per share
- E.P.S. of the Company is 0.78.
- Avg. Share Price for the last 6 months (Oct., ‘03 to March, ‘04) is Rs. 2.58.
- Average Weekly share price for the last two weeks is Rs. 3.05.
Further, you had represented that the shares of the company are infrequently traded on the stock exchanges and that the company had considered the following factors:
Keeping in view the above, the Company is considering a price of Rs. 6/- per share i.e. the face value of share of the company and the highest of the above. The Promoter viz. Navjeet S. Sobti & PAC have not acquired any shares since 1st April, 2001.
The promoters are already in control of the Company and pursuant to the aforesaid proposed preferential allotment, there would not be any change in control over the Company.
Vide your letter dated 22nd April 2004, you had represented that the likely post-preferential allotment capital structure would be as follows:
|
Sr.No.
|
|
Details
|
|
Pre-issue percentage
|
|
Post-issue percentage
|
|
|
1.
|
|
Promoters
|
|
45.84%
|
|
44.21%
|
|
|
2.
|
|
Mutual Funds & UTI
|
|
0.46%
|
|
0.40%
|
|
|
3.
|
|
Private Corporate Bodies
|
|
16.58%
|
|
23.11%
|
|
|
4.
|
|
NRIs/ OCBs
|
|
1.77%
|
|
1.53%
|
|
|
5.
|
|
Indian Public
|
|
35.35%
|
|
30.75%
|
|
| |
|
TOTAL
|
|
100.00%
|
|
100.00%
|
|
Queries:
In view of the above facts, you have sought the interpretive letter on the following two questions:
- Whether the allotment of proposed preferential shares (i) to the extent of 5% to the promoters viz. Navjit S. Sobti & PAC and (ii) to Investors other than Promoters to the extent of 10% would make them liable to make a public offer pursuant to Regulation 11 of the SEBI (Substantial Acquisition of Shares & Takeovers) Regulation, 1997 or they will get exemption under Regulation 3(1)(l) of SEBI (SAST) Regulations, 1997.
- The price considered for preferential allotment @ Rs. 6/- per share (i.e. par value) keeping in view the infrequently traded nature of the share and financial position is justified or not?
Without necessarily agreeing to your analysis, the opinion of the Department in respect of the queries is as follows:
- As per regulation 11(1) of the SEBI (SAST) Regulations, 1997, 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 75 per cent 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.
(i) Regarding proposed allotment to promoters – While considering applicability of regulations 10 and 11 in case of fresh allotment of shares, the incremental voting rights acquired by the acquirer shall be the relevant consideration. In view of your representation that the promoters’ holding as a result of the preferential allotment would go down from 45.84% to 44.21%, we take the position that regulation 11(1) would not be attracted on this allotment. This conclusion is also based on your representation that 45.84% of the pre-issue share capital was held by the promoter Mr. Navjeet S. Sobti and persons acting in concert with him, and specifically on the result flowing therefrom that these shares were entirely held by a group of persons who are the promoter and persons acting in concert with him. A different result may be warranted if the persons comprising the group were not persons acting in concert and if taken individually they cross the limit specified in regulations 10 or 11 as a result of the preferential allotment.
(ii) Regarding the proposed allotment to corporate bodies – In view of your representation that they are not holding any shares in the company and are also not related either to the promoters of the company or to each other and that pursuant to the proposed allotment, all such bodies corporate will be holding less than 5% of the post issue paid up capital of the company individually, the provisions of regulation 11(1) will not apply on the bodies corporate. In arriving at this position, we are given to understand that they or any portion of them are not persons acting in concert with each other or with the promoter.
In view of the above position, the question of exemption under regulation 3(1)(l) would not arise. However situation would be different if in fact the allottees are found to be persons acting in concert.
- Clause 13.1.1 of the SEBI (Disclosure and Investor Protection) Guidelines, 2000 lays down the minimum price below which a preferential allotment of shares cannot be made. The limit is the average of quoted prices for the six months or two weeks preceding the relevant date, whichever is higher, to be computed as laid down in that clause. You had represented that the average share price of the company for the last six months was Rs. 2.58 and the average weekly share price of the company for the last two weeks was Rs. 3.05. Assuming that there would be no substantial variation from these figures for a computation in terms of clause 13.1.1 and subject to the condition that the limit if worked out for the proposed allotment in accordance with that clause would be Rs. 6/- or less, we would take the position that the proposed allotment at a price of Rs.6/- per share would be in accord with clause 13.1.1.
This interpretation is based on the representation made to the Department in your letters quoted above. Different facts or conditions may require a different result. This letter expresses the Department’s position on enforcement action only. It does not express decision of the Board on the questions referred in your letter.
Yours faithfully,
(S.V. Murali Dhar Rao)