Informal Guidance under SEBI ( Informal Guidance) Scheme, 2003 - Shetron Limited

 

CFD/DCR/AT/IG/53966 /05

November 16 , 2005

Shetron Limited

Plot No. A/6, M.ID.C.,

Road No. 5,Andheri (E),

P.B. No. 9454,

Mumbai – 400 093

 

Dear Sir/s,

 

 

1. Please refer to your letter dated August 23, 2005 on the captioned subject seeking ‘Informal Guidance’ under SEBI (Informal Guidance) Scheme, 2003.
    
2. It is, inter-alia, informed by you that:-

a.      Shetron Limited (hereinafter referred to as “SL” or the “Company), incorporated in 1980. The shares of Shetron Limited are listed on Bombay, Bangalore and Ahmedabad Stock exchanges.

b.      Promoters hold 73.67% of the total paid up capital of the Company.

c.      Considering the financial condition of the target company, SL had approached Citigroup Finance (India) Limited (hereinafter referred to as “Citigroup), for funding by way of loans / equity infusion.

d.      Citigroup had agreed to assist the Company in restructuring its existing debt liabilities by way of subscription to debentures issued by the Company, which would enable the Company to settle the existing debt of IDBI and other lenders at mutually agreeable terms.

e.      As part of the restructuring package, Citigroup also asked the Company to allot 1.2 million equity warrants, convertible into equity shares within 18 months of issue to Citigroup, by way of a preferential allotment.

f.        To ensure the promoters’ commitment to the Company, Citigroup also stipulated that the promoters and / or their group companies should also subscribe to 0.8 million equity warrants on similar terms as agreed to by Citigroup.

g.      The aforesaid warrants issued to the Promoters envisaged that existing loans of Rs.40 million from the promoters to the Company would not be repaid but would be converted into equity share capital of the Company by the warrant route.

 

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h.      Further, additional capital is being raised by allotting 0.6 million warrants to Ganges Leasing & Finance Company Limited (non-promoter).

 

i.         Based on the above, the proposed issue of equity share warrants, through the preferential allotment route is as under:

 

Sl. No.  Name of the Allottee   No. of Equity Warrants

 

1.       Citicorp Finance (India) Limited   12,00,000

2.       Ganges Leasing & Finance Company Limited  6,00,000

 3. Kishore Construction Private Limited*  8,00,000        

    Total   26,00,000

    

*Kishore Construction Private Limited (KCPL) is an associate Company of the promoter group led by Mr. Diwakar Shetty.

 

j.         As per the understanding with Citigroup, the promoters shall exercise the aforesaid warrants only in the event that Citigroup decides to exercise the same. In the event that Citigroup decides not to exercise the warrants, the promoters shall allow the warrants to lapse.

 

1. In view of the aforesaid, the ‘Clarification Letter’ has been sought on the following issue:

 

Whether the regulations (Regulation 10 & 11) read with the amendment to Substantial Acquisition of Shares and Takeovers, 1997, in the event of non-consolidation / decrease in promoter’s shareholding / voting rights, the provisions under this regulation will be applicable in the instant case.

 

1. Without necessarily agreeing with your analysis our views in relation to the issues raised in your letter under reference are as follows :

 

1.  
   1. From the submissions made by you in your letter under reference it is understood that consequent  to the allotment of shares pursuant to conversion of warrants allotted to  Citicorp Finance (India) Limited, Ganges Leasing & Finance Company Limited and  Kishore Construction Private Limited, the shareholding of the promoters

 

 

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alongwith the persons acting in concert (if any) with them would be reduced to 61.28% from 73.67%.

1.  
   1. It is also noted that M/s. Kishore Construction Private Limited is a part of promoter Group and its shareholding, if any, in the target company

would be part of the promoter shareholding. Whereas, the shareholding, if any, of Ganges Leasing & Finance Company Limited would be part of non promoter holding.

1.  
   1. In our view, regulation 11(2) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (Takeover Regulations) would be applicable where an acquirer who is already holding 55% or more in a target company acquires additional shares or voting rights in the target company. This regulation applies in case of consolidation of his holding by the acquirer subject to the conditions specified in the said regulation. Therefore, in the present case, if the promoters’ shareholding alongwith the shareholding of the persons acting in concert (if any) with them decreases from 73.67% to 61.28%, as stated in the submissions made in your letter above, then regulation 11 (2) will not apply.
   2. However, if in the event of the exercise of the aforesaid warrants by M/s. Kishore Construction Private Limited (promoter) before the decision of Citicorp Finance (India) Limited to convert the warrants allotted to them  or in any other manner (such as  partial exercise by Citicorp Finance (India) Limited and full exercise by the said promoter), the shareholding or voting rights of the promoters alongwith persons acting in concert (if any) with them increases from their existing shareholding or voting rights then the promoters would be obligated to comply with the relevant regulation i.e.11(2A) of the Takeover Regulations.

 

1. This position is based on the representation made to the Division in your aforesaid letter. Different facts or conditions might require a different result. This letter does not express decision of the Board on the questions referred.

1. You may note that the above views are expressed only with respect to the clarification sought on SEBI (Substantial Acquisition and Takeovers) Regulations, 1997 and do not affect the applicability of any other law or requirement.

 

Yours faithfully,

 

 

S V MURALIDHAR RAO