SECURITIES AND EXCHANGE BOARD OF INDIA
IN THE MATTER OF PROPOSED ACQUISITION OF SHARES OF RAINBOW DENIM LIMITED {EXEMPTION APPLICATION FILED UNDER REGULATION 4 (2) OF THE SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997}
WTMO/M/CFD/172/06/JAN
1.0 BACKGROUND
1.1 Rainbow Denim Ltd. (hereinafter referred to as ‘the target company’) is a public limited company incorporated under the Companies Act, 1956 and having its registered office at Village Chaudheri, P. O. Dappar, Tehsil Chaundheri, Dist. Patiala, Punjab – 140 506. The equity shares of the target company are listed on the Bombay Stock Exchange Ltd., Ahmedabad Stock Exchange Ltd. and Ludhiana Stock Exchange Ltd. .
1.2 Indo US Investments Inc. (hereinafter referred to as ‘the acquirer’) is a part of the promoter group of the target company and it currently holds 30,00,000 equity shares (representing 20.11% of the existing total paid up equity share capital) in the target company.
2.0 APPLICATION FOR EXEMPTION
2.1 The acquirer, through target company, filed an application dated October 05, 2005 under regulation 4 of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 (hereinafter referred to as ‘Takeover Regulations’) with SEBI seeking exemption from complying with the provisions of regulation 11(1), 13, 15, 18 of Chapter III of the Takeover Regulations, in respect of the proposed allotment of 32,93,589 equity shares (18.09%) of equity capital of the target company in two tranches of 16,66,666 @ Rs. 24/- and 16,26,923/- @ Rs. 26/- by way of preferential allotment to the acquirer.
3.0 SUBMISSIONS IN THE EXEMPTION APPLICATION
3.1 In the application, it has been inter alia submitted that:-
i) The target company is engaged in business of manufacturing, trading and exports of denim fabrics. Textile Industry occupies a unique position in country’s economy and contributes nearly 30% of the country’s exports earnings and accounts for around 14% of the total industrial production.
ii) The target company suffered losses since inception due to very high interest burden. In view of the same, the target company was in default with its lenders in respect of its loan obligations.
iii) With a view to restructure the long-term debts and restore its financial heath, the target company had availed the Corporate Debt Restructuring (CDR) mechanism instituted by the Reserve Bank of India. Under the restructuring package approved by CDR Empowered Group, entire secured debt portfolio of the target company has been restructured in consultation with the financial institution led by Industrial Development Bank of India Ltd. and Banks led by Bank of India.
iv) One of the terms and conditions subject to which CDR package has been approved is that the promoters of the target company shall bring in additional equity of Rs. 823 lacs as part of the restructuring package.
v) The Reserve Bank of India vide letters dated July 07, 2005 and August 19, 2005 permitted the target company to bring in funds upto Rs. 823 lacs, in terms of the restructuring package under CDR mechanism for restructuring the target company’s debts, through the acquirer as an incorporated non resident entity by foreign inward remittance for the issue of upto 40 lacs equity shares as per the extant FDI norms.
vi) In accordance with the above condition, the promoters have agreed to bring in the stipulated subscription of Rs. 823 lacs by way of additional contribution in two tranches towards equity capital of the target company in compliance with SEBI (Disclosure and Investor Protection) Guidelines, 2000.
vii) The proposed allotment of shares to the acquirers on preferential basis is wholly for the benefit of and in the best interests of the target company. It would not in any manner affect or prejudice the interests of the public shareholders or other stakeholders of the target company.
viii) The proposed acquisition of shares may not be construed as acquisition of shares for the purpose of gaining control over the target company as the acquirer forms a part of the promoter group.
ix) The members of the target company have, by way of postal ballot, passed a special resolution under section 81(1A) of the Companies Act, 1956, in respect of the proposed preferential allotment of equity shares to the acquirer.
x) The proposed preferential allotment would not result in reducing the non promoter holding below the limit of public shareholding specified under the SEBI Guidelines.
xi) The proposed new equity shares shall be locked in as per the Preferential Issue Guidelines
4.0 RECOMMENDATION OF THE TAKEOVER PANEL
4.1 The aforesaid application dated October 05, 2005 was forwarded to the Takeover Panel in terms of sub-regulation (4) of regulation 4 of the Takeover Regulations. The Takeover Panel vide reports dated November 24, 2005 recommended as under –
“Taking totality of circumstances into consideration and in view of there being no change in control and management of the target company by the proposed acquisition of Shares, grant of exemption as sought is recommended.”
5.0 FURTHER SUBMISSIONS
5.1 The target company vide its letters dated December 12, 2005, December 29, 2005 and January 04, 2006, has confirmed that:-
i). A general meeting of shareholders of the target company was called for passing a special resolution under section 81(1A) of the Companies Act, 1956 in respect of the proposed preferential allotment to the prospective acquirer and the said meetings were held on July 29, 2005 and August 30, 2005.
ii). In the explanatory statement in terms of Section 173 of the Companies Act forming part of the Notice of General Meeting, the following disclosures were made:
· The price at which the allotment is proposed.
· The identity of proposed allottees.
· The purpose of and reason for such allotment.
· Consequential changes, if any, in the Board of Directors of the target company and in voting rights, the shareholding pattern of the target company, and
· Whether such allotment would result in change in control over the target company.
iii). The guidelines for preferential allotment (including pricing) as specified under Chapter XIII of SEBI (Disclosure and Investor Protection) Guidelines, 2000 were complied with.
iv) The facility of voting through postal ballot for passing of the special resolutions as per the procedure laid down for postal ballot in rule 2A and rule 5 of The Companies (Passing of the Resolution by Postal Ballot) Rules, 2001 was provided. The notice to the shareholders was sent by post including a postage pre paid envelope for facilitating the consent or dissent. Further, the notices of postal ballot to the shareholders were dispatched under Certificate of Posting in terms of the Companies (Passing of the Resolution by Postal Ballot) Rules, 2001 and the advertisement regarding the dispatch of postal ballot was issued. In view of this, no prejudice have been caused to the shareholders,
v). The prospective acquirer and PACs (promoter group shareholders) of the target company, being interested party to the resolution abstained from voting in respect of the above resolution under Section 81(1A) of the Companies Act, 1956.
6.0 FINDINGS
6.1 I have carefully considered the application dated October 05, 2005 and taken into consideration, the relevant material available on record and the recommendation of the Takeover Panel and further submissions of the target company.
6.2 It is noted that the shareholding pattern of the target company before and after the proposed acquisition, is as under:
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Shareholder’s category
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Number of registered share-holders as on date of application
(30/09/05)
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Before the proposed acquisition
Number of shares/
(total voting rights held)
As ON 30/09/05
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%
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After the proposed acquisition
Number of shares / total voting rights held
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%
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Promoter Group
Prompters and PACs
Acquirers*
Total
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13
1
14
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18,17,589
30,00,000
48,17,589
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12.19
20.11
32.30
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18,17,589
62,93,589
81,11,178
|
9.98
34.56
44.54
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FIs/ Banks
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16
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45,23,900
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30.3
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45,23,900
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24.84
|
|
FIIs/ NRIs/OCBs
|
63
|
77,034
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0.52
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77,034
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0.43
|
|
Public
|
17788
|
54,97,247
|
36.85
|
54,97,247
|
30.19
|
|
Total
|
17881
|
14915770
|
100
|
18209359
|
100
|
*Acquirer is a part of the promoter group and hence has been shown under the promoter group.
6.3 The acquirer is belonging to the promoter group and pursuant to the proposed acquisition its holding would increase from 20.11% to 34.56% and that of the promoter group would increase from 32.30% to 44.54% of the enhanced equity voting capital of the target company. After the proposed acquisition, the shareholding of the acquirer would increase from 20.11% to 34.56% of the enhanced paid up capital of the target company and the shareholding of the promoter group would increase from 32.30% to 44.54% of the enhanced paid capital of the target company, consequent to the proposed preferential allotment. Thus, the proposed acquisition, unless exempted under regulation 3 of the Takeover Regulations, would attract regulation 11(1) thereof.
6.4 I observe that the proposed preferential allotment is pursuant to the stipulation imposed by the CDR mechanism for restructuring the debts of the target company. The Reserve Bank of India has also permitted the target company to bring in said Rs. 823 lacs through the acquirer. I also observe that the target company has undertaken and confirmed to make allotment at the price as may be determined in terms of Chapter XIII SEBI (Disclosure and Investor Protection) Guidelines, 2000 and the equity shares allotted under the proposed preferential allotment shall be locked-in terms of the said Guidelines. Further, there would not be any change in control in the target company pursuant to the proposed allotment and the proposed preferential allotment would not result in reducing the public shareholding below the limit of public shareholding specified in the listing agreement.
6.5 The target company had already taken effective steps and passed necessary resolution in the Annual General Meeting giving the facility of postal ballot to the shareholders in accordance with rule 2A and rule 5 of The Companies (Passing of the Resolution by Postal Ballot) Rules, 2001, wherein the acquirer had abstained from voting.
6.6 In view of the above facts and circumstances, I agree with the recommendations of the Takeover Panel and consider the present case as a fit case for granting exemption from making a public announcement as required under regulation 11 (1) of the Takeover Regulations.
7.0 ORDER
7.1 In view of the above findings , I , in exercise of the powers conferred upon me by virtue of section 19 of the Securities and Exchange Board of India Act, 1992 read with sub-regulation (6) of regulation 4 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, hereby grant exemption to the acquirer, Indo US Investments Inc. from complying with the provisions of Regulation 11(1) of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 with regard to the proposed acquisition of 32,93,589 equity shares of Rainbow Denim Ltd.
6.7 As the effective steps like passing resolution etc. have already been taken by the target company and the target company has confirmed to comply with SEBI (Disclosure and Investor Protection) Guidelines,2000, I direct that the proposed preferential allotment shall be completed within 15 days of receipt of this order and the acquirer shall file a report with SEBI in the manner specified in Regulation 3(4) read with 3(5) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
| PLACE: MUMBAI |
MADHUKAR
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DATE:31-01-06
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WHOLE TIME MEMBER
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SECURITIES AND EXCHANGE BOARD OF INDIA
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