Neelam Bhardwaj
Deputy General Manager
Corporation Finance Department
Division of Issues and Listing
Phone: +91 22 2285 0451-56, (Extn: 367) 22842826
Fax: +91 22 2204 5633. Email: neelamb@sebi.gov.in
CFD/DIL/IG/PR/NB/21001 /2004
September 17, 2004
Kotak Mahindra Capital Co. Ltd.
Bakhtawar, 3rd Floor
229 Nariman Point
Mumbai 400 021
Dear Sirs,
Sub: Request under Securities and Exchange Board of India
(Informal Guidance) Scheme, 2003
Ref: Your letters in this regard dated July 13, 2004, July 15, 2004, August 2, 2004,
August 26, 2004 and September 17, 2004
1. Please refer your letter dated July 15, 2004 seeking “Interpretative Letter under SEBI (Informal Guidance) Scheme, 2003. The interpretive letter is sought on the issue as to whether the Kotak Mahindra Capital Co. Ltd. (KMCC) is an ‘associate’ of Hutchison Max Telecom Ltd. (HMTL) in terms of the Clause 5.4.1.1 of the SEBI (Disclosure and Investor Protection) Guidelines, 2000 by virtue of its shareholding and that of its associates in HMTL and whether it be entitled to act as the book running lead manager for co-ordination and implementation of all activities normally outlined in an inter-se allocation of responsibilities in relation to the proposed Initial Public Offer (IPO) of HMTL.
2. It is, inter-alia, informed and suggested by you vide your letters quoted above that:-
(i). KMSL is a wholly owned subsidiary of KMCC. KTCPL and Komaf are associates of KMCC;
(ii). There is no cross ownership between KTCPL and KMCC, KMSL, KMFL or Komaf. Further there is no cross ownership between Komaf and KMBPL or any of KMBLs subsidiaries;
(iii). KMCC, KMSL as well as its affiliates do not directly either by themselves or their first level holding or subsidiary company hold any shares in HMTL;
(iv). There are no common directors on the Board of KMCC & HMTL;
(v) As per your understanding, you can act as the Book Running Lead Manager (BRLM) for the proposed IPO;
3. Vide your letters dated July 15, 2004 and September 17, 2004, you have suggested and proposed inter alia the following: -
i) The indirect investment of the Kotak Group is in the nature of a financial investment, and you have no intention to sell the holding of the Kotak Group investment companies in HMTL by way of an offer for sale in the proposed IPO. Accordingly, the holding of the two investment companies (viz. Telecom Investments (India) Private Limited and Usha Martin Telematics Limited) shall be subject to lock- in as per the SEBI Guidelines.
ii) You will ensure necessary disclosures in relation to the holding of KMCC and all its affiliated companies in HMTL in the prospectus for the IPO.
iii) You would act as BRLM in the proposed IPO of HMTL; subject to the condition of HMTL appointing two independent SEBI registered merchant bankers who would carry out the due diligence in proposed IPO of HTML along with you. Further, an independent legal due diligence shall be conducted by both domestic and international firms, consistent with the practice in all large public offer transactions, and accordingly the necessary opinions shall be issued.
4. Without necessarily agreeing with your analysis, it is observed that-
a. As per Explanation (i) to Clause 5.4.1.1 of the SEBI (DIP) Guidelines, 2000, a merchant banker shall be deemed to be an associate of the issuer if he holds not less than 15% of voting power of the issuer or issuer holds not less than 15% of the voting power of merchant banker, directly or indirectly through itself or its subsidiary or holding company.
b. In the instant case, KMCC does not hold 15% voting power in HMTL (proposed issuer) through itself or through its subsidiary or holding company. It is noted that KMCC holds 29.99% in Multifaceted Finstock Pvt. Ltd. (MFP). Thus, MFP cannot be considered as a subsidiary of KMCC under section 4 of the Companies Act, 1956 even though substantial amount of shareholding of MFP is held by associate / subsidiary of KMCC. MFP holds 51% in Telecom Investments (India) Pvt. Ltd. (TIP). Thus, TIP may be subsidiary of MFP. However, since MFP is not a subsidiary of KMCC, TIP is also not a subsidiary of KMCC. Further, any holding company or subsidiary company of KMCC does not hold 15% in HMTL. Therefore, in the instant case, the KMCC can not be regarded as an associate of HMTL under Explanation (i) to Clause 5.4.1.1 of the SEBI (DIP) Guidelines, 2000.
c. Since it has also been submitted that there are no common directors on the Board of KMCC & HMTL and KMCC indirectly holds 22,36% in HMTL and a major shareholding is that of Hutch Group companies and Essar Group companies, KMCC may not fall under the definition of “associate” under Explanations (ii) and (iii) of the clause 5.4.1.1 of SEBI (DIP) guidelines also.
5. We also advise you to ensure compliance with the proposals suggested by you as per your letters dated July 15, 2004 and September 17, 2004 as mentioned in 3 above.
6. This position is based on the representations and submissions made to the Division in your letters under reference. Different facts or conditions might require a different result. This letter expresses the Division’s position on applicability of Explanations to Clause 5.4.1.1 of the SEBI (DIP) Guidelines, 2000 only in the instant case. It does not express decision of the Board on the questions presented. This guidance is based on the law existing as on September 15, 2004.
7. As regards your request for confidentiality under Clause 11 of the Informal Guidance Scheme (from the date of application till the date of listing of the shares of HMTL pursuant to the IPO of HMTL), you are advised that in terms of said clause 11 of the Scheme, your request shall receive confidential treatment for a period of time not exceeding 90 days from the date of this letter.
8. You may note that the above views are expressed only with respect to the clarification sought on the applicability of SEBI ( Disclosure and Investor Protection) Guidelines 2000 and do not affect the applicability of any other law or requirements.
Yours faithfully,
Neelam Bhardwaj