General Manager
Corporation Finance Department
Division of Issues and Listing I
((Direct) : 26449350
Email : neelamb@sebi.gov.in
CFD/DIL/SM/121526/2008
March 27, 2008
Shri Praful Satra
Managing Director
Satra Properties (India) Ltd.
Dev Plaza, 2nd Floor
Opposite Andheri Fire Station
S.V. Road
Andheri (West)
Mumbai- 400 058
Dear Sir,
Subject : Request for interpretative letter under SEBI (Informal Guidance) Scheme, 2003- SEBI (DIP) Guidelines regarding Qualified Institutions’ Placement(QIP)
1.0 Please refer to your letter dated February 4, 2008 seeking informal guidance under the SEBI (Informal Guidance) Scheme, 2003.
2.0 Vide your abovementioned letter, it is inter alia submitted by you as follows:-
2.1 SPIL (formerly known as “Express Leasing Ltd.”) was incorporated in Maharashtra in 1983. It is a real estate company in Mumbai.
2.2 SPIL is listed with the Bombay Stock Exchange (BSE) and is in the process of planning a Qualified Institutions’ Placement (QIP).
2.3 Om Housing Company Pvt. Ltd. (OM), a closely held private limited company got amalgamated with SPIL under the scheme of amalgamation approved by the Bombay High Court under sections 391 and 394 of the Companies Act, 1956 by its order which was received on August 22, 2007.
2.4 Pursuant to the above mentioned scheme, SPIL has allotted 3,71,92,250 equity shares of Rs. 2 each to the shareholders of OM.
2.5 OM being a promoter group company, the public shareholding of SPIL which was 35.80% pre merger, came down to 10.09% post merger.
2.6 At the time of amalgamation, SPIL had given an undertaking to BSE that the non promoter holding in post amalgamation capital shall be augmented to 25% by way of private placement to QIBs and/or Rights Issue and/or further issue, within 6 months from the date of listing the fresh share capital.
2.7 In view of the above, SPIL is considering to increase the public shareholding by way of QIP.
2.8 Clause 13.A.1.1(b) of the SEBI (DIP) Guidelines on QIP provides that the listed company must be in compliance with the prescribed minimum public shareholding requirements of the listing agreement.
2.9 Clause 40A (vii) and clause 40A(viii) of the Listing Agreement provides that where the public shareholding in a company falls below the minimum level of public shareholding on account of supervening extraordinary events including among other things, ‘re-organisation of capital by way of arrangement’, the company shall forthwith adopt any of the following methods to raise public shareholding to the minimum level:
(a) Issuance of shares to public through prospectus;
(b) Offer for sale of shares held by promoters to public through prospectus;
(c) Sale of shares held by promoters through the secondary market; or
(d) Any other method which does not adversely affect the interest of minority shareholders.
For the purpose of adopting the above methods, the company has to take prior approval of the specified stock exchange which may impose such conditions, as it deems fit.
2.10 Thus, it is seen that clause 40A (viii) of the Listing Agreement permits any method to increase public shareholding which does not affect the interest of minority shareholders.
2.11 Since public shareholding of SPIL came down because of the amalgamation scheme, it is a supervening extraordinary event as per clause 40A (vi) read with clause 40A(vii) (c) of the Listing Agreement and accordingly, BSE has granted 6 months’ period for increasing the public shareholding to at least 25%.
2.12 SPIL is of the view that for the purpose of increasing the public shareholding to 25% through the QIP route, the restriction imposed under clause 13A.1.1(b) of the SEBI (DIP) Guidelines on QIP, i.e. compliance of minimum public shareholding requirements, is not applicable and therefore, SPIL should be able to increase the public shareholding by issue of shares through QIP.
3.0 We have considered the submissions made by you in your letter under reference and without necessarily agreeing with your analysis, our views on the issue are as under:
3.1 Clause 13A 1.1(b) provides an eligibility condition for a company to be able to make a QIP i.e. only a company which is compliant with the minimum public shareholding requirements as per clause 40A of the Listing Agreement can make a QIP. Thus compliance with the minimum public shareholding requirements, as specified in clause 40A of the Listing Agreement, is a condition precedent for a company to be eligible to make a QIP.
3.2 The provisions of Chapter XIII A of DIP Guidelines providing for QIP are not available to a company which does not fulfill the above eligibility criteria. SIPL should, as undertaken, increase public shareholding in accordance with clause 40A of the Listing Agreement by any other methods specified in clause 40A for which it is eligible.
3.3 Making a QIP while not fulfilling the eligibility criteria would be in violation of clause 13.A.1.1. of DIP Guidelines.
3.4 Therefore, SPIL , which is non-compliant with the minimum public shareholding requirements specified in clause 40A of the Listing Agreement, cannot go for a QIP to increase the public shareholding .
4.0 This position is based on the representation made to the division in your aforesaid letters under reference. Different facts or condition might require different results. This letter does not express a decision of the Board on the question referred.
5.0 Please note that this position is only with respect to the applicability of the provisions of clause 13.A.1.1 (b) of SEBI (DIP) Guidelines on “Qualified Institutions’ Placement”. It does not affect the applicability of any Act, Rules or Regulations, Guidelines and Circulars administered by SEBI or any other authority or the provision of the rules, regulations and bye laws or Listing Agreeement of the stock exchange.
Yours faithfully,
Neelam Bhardwaj