DEPUTY GENERAL MANAGER
DIVISION OF CORPORATE RESTRUCTURING
CFD/DCR/TO/MM/ /07
May 4, 2007
Strides Arcolab Limited
‘STRIDES HOUSE’, Bilekahali,
Bannarghatta Road, Bangalore – 560 076
Dear Sirs,
Sub.: Request for Interpretive Letter under the SEBI (Informal Guidance) Scheme, 2003
Ref : Your letter dated April 10, 2007 and email dated April 17, 2007
1.0 Please refer to your letters quoted above, seeking interpretative letter under the SEBI (Informal Guidance) Scheme, 2003. The interpretive letter has been sought on the applicability of regulation 11 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 {“the Takeover Regulations”} in respect of and at the time of issue of warrants by Strides Arcolab Limited (the target company) to its promoters and conversion of such warrants.
2.0 It is, inter-alia, informed by you vide your letters under reference, that:-
i). The shares of the target company are listed on BSE and NSE.
ii). Out of total equity shares of 34,954,289, the promoters of the target company currently hold 6,580,261 (18.83%) equity shares of the target company.
iii).The target company proposes to issue upto 56,00,000 warrants convertible into equivalent number of equity shares in compliance with SEBI (Disclosure and Investor Protection) Guidelines, 2000 to the promoters.
iv). These warrants are proposed to be converted as under:
a). 22,50,000 warrants are proposed to be converted on or before 31.03.2008. Consequently, promoters’ holding in the target company would increase from 18.83% to 23.73% (an increase in over 4.90% during Financial Year ending March 31, 2008 on account of conversion of warrants into equity shares).
b). 25,50,000 warrants are proposed to be converted before 31.03.2009 or 18 months from date of allotment of warrant, resulting in promoter holding increasing from 23.73% to 28.63% (an increase of over 4.89% during Financial Year ending March 31, 2009).
v).The promoters may opt to convert more warrants in a Financial Year in case the target company issues equity shares to any other person during the said period. The said situation is envisaged as there are outstanding FCCBs issued by the target company as well as shares that may be issued under ESOP scheme of Company or any other issue by the target company. In any case, the increase during the relevant Financial Year will be less than 5%.
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) 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.
(ii) In terms of regulation 14(2) of the Takeover Regulations, in case of acquisition of convertible securities the public announcement referred to in regulation 11 shall be made not later than 4 working days before the acquirer acquires voting rights on such securities upon conversion or exercise of the option, as the case may be.
(iii) Regulation 11(1) of the Takeover Regulations is triggered by acquisition of shares entitling the acquirer to exercise voting rights beyond the threshold limits specified in the said regulation. In case of acquisition of convertible securities such as warrants which would entitle the acquirer to exercise voting rights, exceeding the threshold limit specified in regulation 11, the regulations are triggered on conversion of warrants, or exercise of option, as the case may be whereby the acquirer acquires voting rights on such convertible securities. Therefore, at the time of issue of warrants by the target company, regulation 11(1) of the Takeover Regulations will not be triggered.
(iv) 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 the date of such conversion would apply. In terms of regulation 11(1) as it exists today, an acquirer can acquire upto 5% additional voting rights in one Financial Year without making a public announcement to acquire the shares of the target company in accordance with the Takeover Regulations.
(v) 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, 2008 and March 31, 2009.
(vi) In view of this, if at the time of conversion of warrants into equity shares by promoters of the target 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%.
(vii) However, the promoters shall be under obligation to make necessary disclosures as required under regulation 7(1A) of the Takeover Regulations.
4.0 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.
5.0 Please note that this position is only with respect to applicability of regulation 11(1) of the Takeover Regulations on the proposed issue and conversion of warrants. This position does not affect applicability of any law including Regulations, Guidelines and circulars administered by SEBI or any other authority in respect of the proposed issue and conversion of warrants and in respect of conversion of FCCBs or exercise of option under ESOP Scheme of the target company.
Yours faithfully,
SOMA MAJUMDER