GENERAL MANAGER
DIVISION OF CORPORATE RESTRUCTURING
CFD/DCR/TO/MM/ /04
October 19, 2004
Sudarshan Chemical Industries Limited
162 Wellesley Road,
Pune – 411 001
Dear Sirs,
Sub.: Request for Interpretive Letter under the SEBI (Informal Guidance) Scheme, 2003
Ref : Your letter dated September 3, 2004
1.0 Please refer to your letter cited above, seeking ‘Interpretive Letter’ under SEBI (Informal Guidance) Scheme, 2003. The Interpretive Letter has been sought on the following issues -
a. If Dainippon Ink and Chemicals Inc. Japan (DIC) which holds shares in Sudarshan Chemical Industries Limited (SCIL) is a listed company for more than 3 years, sells shares to Rathi Group, the Indian promoters of the Target company whose members may or may not be individually holding shares for the last 3 years, whether this inter se transfer of shares would qualify for exemption under regulations 3 (1) (e) (a)and (b) of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 (Takeover Regulations).
b. In case members of Rathi Group are holding shares for less than 3 years, are there any restrictions as to % of shares which can be acquired.
c. The proviso to Regulation 3(1)(e) regarding 3 years minimum shareholding by transferees and transferors applies only to Regulation 3(1)(e)(iii) and not to Regulations 3(1)(e)(i) and 3(1)(e)(ii) of the Takeover Regulations .
2.0 It is, inter-alia, informed by you that:-
i. SCIL is a listed company. Rathi Group, the Indian Promoters and Dainippon Ink and Chemicals Inc. Japan (DIC), the Foreign Collaborator/Promoter of SCIL each hold 29.03% of the equity share capital of the SCIL.
ii. DIC wishes to divest 14,51,700 shares (20.97%) of its shareholding in SCIL to Rathi Group/Indian Promoters. DIC would continue to hold the balance 8.06% shares in SCIL.
3.0 Our views on the queries raised by you vide para 1.0 above are as under:-
3.1 Regarding query at 1.0 (a)
a. As per Reg. 3(1)(e)(iii)(a) and (b) of the Takeover Regulations, transfer of shares amongst promoters and foreign collaborators or amongst Promoters is eligible for exemption from the applicability of the Regulations 10, 11 and 12 of the Takeover Regulations subject to the acquirer complying with the following conditions.
i. The transferor(s) and transferee(s) are promoters/foreign collaborators in terms of provisions of Regulation 2(1)(h) of the Takeover Regulations.
ii. The transferees collectively as well as transferors collectively have been holding shares in the target company for a period of atleast three years prior to the date of acquisition.
iii. The provisions of Chapter II of the Takeover Regulations have been complied with within the specified time-limit by both the transferees and transferors.
iv. The inter se transfer price should not exceed 25% of the price determined in terms of Regulation 20(4) and 20(5) of the Takeover Regulations, as applicable.
v. The transferee (acquirer) should inform the stock exchanges atleast 4 working days in advance of the date of proposed acquisition in case of acquisition exceeding 5% of the voting share capital of the target company in terms of Regulation 3(3) of the Takeover Regulations.
vi. The transferee (acquirer) shall file a report with SEBI in the specified format within 21 days of the date of acquisition along with requisite fees prescribed, in terms of Regulations 3(4) and 3(5) of the Takeover Regulations.
b. As per condition stated at point a(ii), the transferor as well as transferee is required to hold shares in the target company for atleast three years i. e., the transferors collectively and the transferees collectively should be holding shares for atleast three years prior to the proposed acquisition. Therefore, even if some of the members of promoters group (transferee) are not holding shares in target company for the last 3 years prior to the proposed acquisition, the acquisition would be exempted under regulation 3 (1) (e) of the Takeover Regulations provided that the other conditions as mentioned above are also fulfilled.
c. In the instant case, even if some of the members of Rathi Group are not holding shares for the last 3 years prior to the proposed acquisition, they would be deemed to be fulfilling the condition of minimum 3 years shareholding prior to the proposed acquisition by transferees in order to be eligible for exemption under regulation 3(1)(e)(iii) of the Takeover Regulations.
d. The exemption under regulation 3(1)(e)(iii), may be available to the transferee (acquirer) i.e. the Rathi Group, if it complies with all the conditions as stated at points (i) to (vi) at para 3.1 (a) above .
3.2 Regarding query at para 1.0 (b) above
a. As per provisions of Regulation 11(1) of the Takeover Regulations, any acquirer together with persons acting in concert with him, holding 15% or more but less than 75% of the shares or voting rights in the target company can acquire additional shares or voting rights entitling him to exercise more than 5% of voting rights in any financial year without making a public announcement.
b. Therefore, the Rathi Group, which is collectively holding 29.03% in SCIL may acquire upto 5% shares or voting rights in any financial year without triggering the provisions of the Regulation 11(1) of the Takeover Regulations.
c. However, in case the Rathi Group acquires more than 5% in one financial year and wishes to avail the exemption under Regulation 3(1)(e)(iii)(a) or (b), then it will have to fulfill the conditions specified in para 3.1 (a) above.
3.3 Regarding query at para 1.0 (c) above
a. The precondition of minimum three years shareholding of shares by transferors and transferees applies only to Regulation 3(1)(e)(iii)(a) and 3(1)(e)(iii)(b) and not to Regulation 3(1)(e)(i) and 3(1)(e)(ii) 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 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 MURALI DHAR RAO