SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
IN THE MATTER OF PROPOSED ACQUISITION OF EQUITY SHARES OF GUJARAT FLUROCHEMICALS LTD – EXEMPTION APPLICATION FILED UNDER REGULATION 4(2) OF THE SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997
WTMO/ TCN /CFD/20/July/2008
1.0 BACKGROUND –
1.1 Gujarat Flurochemicals Ltd. (hereinafter referred to as ‘the Target Company’) is a public company, having its registered office at S/No. 16/3, 26 & 27, Ranjit Nagar, Taluka Ghoghamba, District Panchmahals, Gujarat- 389380. The equity shares of the target company are listed on the Bombay Stock Exchange Ltd. (BSE) and the National Stock Exchange of India Ltd. (NSE).
2.0 APPLICATION FOR EXEMPTION:–
2.1 Inox Leasing and Finance Ltd. on its behalf and on behalf of the persons action in concert with it filed an application dated 31-03-2008 under regulation 4(2) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 (hereinafter referred to as ‘the Takeover Regulations’).
2.2 Following persons are stated to be acting in concert with Inox Leasing and Finance Ltd.:
(i) Devansh Trading and Finance Private Ltd.,
(ii) Hotz Industries Ltd.,
(iii) Inox Chemicals Private Ltd.,
(iv) Siddhapavan Trading and Finance Private Ltd.
(v) Siddho Mal Investments Private Ltd.,
(vi) Mr. Devansh Jain,
(vii) Mr. Devendra Kumar Jain,
(viii) Mrs. Hem Kumari Jain,
(ix)Mrs. Kamala Devi Jain,
(x) Mr. Kapoor Chand Jain,
(xi) Mrs. Nandita Jain,
(xii)Mrs. Nayantara Jain,
(xiii) Mr. Pavan Kumar Jain,
(xiv) Mr. Siddarth Jain,
(xv) Mr. Vivek Kumar Jain; and
(xvi) Mrs. Sita Devi Jain
Inox Leasing and Finance Ltd. and the above persons acting in concert with it are hereinafter collectively referred to as ‘the acquirers’.
2.3 The acquirers have inter-alia made the following submissions in their application:
a. The acquirers are part of the promoter group of the Target Company. The acquirers collectively hold 76,933,540 equity shares representing 66.45% of the paid-up equity share capital of the Target Company.
b. The Board of Directors of the Target Company has passed a Resolution dated 21-03-2008 for buy-back of its fully paid up equity shares of the face value of Re. 1/- each at a price not exceeding Rs.300/- per equity share. The total amount of the buy-back is not to exceed Rs.614.33 million. The proposed buy-back is for approximately 10% of the aggregate of the company’s paid-up equity capital and free reserves eligible for use as on 31-03-2007.
c. The actual number of equity shares to be bought back would depend upon the average price paid for the equity shares bought back and amount deployed in the buy-back. As an illustration, at the proposed maximum price of Rs.300/- per equity share and for the deployed amount of Rs.614.33 million, the number of equity shares to be bought back would be 2,047,766 which will be 1.76% of the pre-buy-back paid up equity share capital of the Target Company. Should the average price be lower than Rs.300/- the number of equity shares bought back would be more, assuming the deployment of Rs.614.33 million.
d. The said buy-back proposal was made keeping the Target Company’s desire to maximize returns to investors. The proposed buy-back is expected to lead to reduction of outstanding equity shares which may lead to increase in earnings per share and thereby creating long term share holder value
e. The closing prices of the shares of the Target Company as on 28-03-2008 at BSE was Rs.188.10 and at NSE it was Rs.187.15 respectively.
f. The maximum price of Rs.300/- at which the buy-back will be carried out has been arrived at after considering certain parameters such as book value, earnings trend in the recent past, the future outlook for the industry and other relevant factors.
g. The acquirers will not participate in the buy-back of equity shares. The Target Company shall not purchase any equity shares from the acquirers.
h. After completion of the proposed buy-back the shareholding of the acquirers may increase from 66.45% to 67.64% of the voting rights of the Target Company.
i. The acquirers are already in control over the Target Company. There would not be any change in control over the target company pursuant to the increase (1.19%) in the shareholding of the acquirers.
j. The increase in the shareholding and voting rights of the acquirers in the Target Company is only incidental to the proposed buy-back offer and is not an active acquisition.
k. Even after the buy-back of the equity shares by the Target Company (assuming that the Company will buy-back 2,047,767 equity shares of Re.1 each at a maximum price of Rs.300/- per equity share), the public shareholding in the Target Company would be at minimum twenty-five percent which meets the requirements prescribed under listing agreement.
2.4 The shareholding pattern of the target company (as on March 21-03-2008) before and after the proposed acquisition is as follows:-
|
Shareholders’ Category
|
Number of registered shareholders as on date of application
|
Before the proposed acquisition
|
After the proposed acquisition
|
|
|
|
Number of shares/total voting rights held
|
% of shares/ total voting capital held
|
Number of shares/total voting rights held
|
% of shares/ total voting capital held
|
|
Promoter/ Promoter Group
|
25
|
76933540
|
66.45
|
76933540
|
67.64
|
|
acquirers
|
Same as Promoter Group
|
|
FIs/ Banks
|
24
|
5487078
|
4.74
|
36798693
|
32.36
|
|
FIIs/ NRIs/ OCBs
|
24
|
5566426
|
4.81
|
|
Public
|
11672
|
27792956
|
24.00
|
|
Total
|
11745
|
115780000
|
100.00
|
113732233
|
100.00
|
2.5 In view of the above submissions, the acquirers have sought exemption from the applicability of regulation 11 (2) of the Takeover Regulations with respect to the proposed buy-back of the fully paid equity shares of the Target Company.
3.0 RECOMMENDATION OF THE TAKEOVER PANEL:-
3.1 The application dated 31-03-2008 was forwarded to the Takeover Panel in terms of sub-regulation (4) of Regulation 4 of the Takeover regulations. By its Report dated 07-05-2008, the Takeover Panel has recommended that-
“The Panel carefully examined the proposal and after discussion came to the conclusion that the proposed buy-back of shares at the maximum price of Rs.300/- per share (as against the closing price of Rs 187.15 at NSE and Rs 188.10 at BSE on March 28, 2008) is favourable to the public shareholders. This would also result in maximizing returns to the investors. Even after the buy-back, the public shareholding shall not come below 25% and there would not be any change in control over the target company. In consideration thereof, the panel recommends exemption under Regulation 4 subject to the conditions that the acquirers shall ensure that after the buy-back the public shareholding remains above 25% and the buy-back proposal is carried through in compliance with the relevant provisions of the Companies Act, 1956 and SEBI regulations.”
4.0 FURTHER SUBMISSIONS:
a. The acquirers have vide letter dated 09-06-2008 stated that while theoretically it is not possible to quantify with precision the exact extent to which the acquirer’s holding could increase, the acquirers shareholding may increase from 66.45% to a maximum of 74.99% of the voting rights of the Target Company as a result of the buy-back.
b. The acquirers have also given an undertaking that their holding shall not be greater than 74.99% of the voting rights of the Target Company as the Target Company wishes to be within the continuous listing requirements prescribed by stock exchanges.
5.0 FINDINGS:-
5.1 I have carefully considered the application dated 31-03-2008, the recommendations of the Takeover Panel, submissions of the acquirer and the relevant materials available on record. Acquirers are the promoters of the Target Company and they hold 66.45% of the paid up equity capital of the Target Company.
5.2 The proposed buy-back by the target company is pursuant to a resolution passed by the Board of Directors of the Target Company on 21.03.2008 The present case is thus covered by the proviso to Section 77(A) (2) (b) of the Companies Act which authorizes the company to buy-back 10% or less than 10% of the total paid up equity capital and free reserves of the company. Admittedly, in this case the Target Company has proposed to buy-back approximately 10% of the total paid up equity capital and free reserves of the company and in terms of section 77A (3) (d) an amount of Rs. 614.33/- million representing approximately 10% aggregate of the Target Company’s paid-up equity capital and free reserves as on 31-03-2007 has been proposed to be deployed for the buy-back. The target company has disclosed the maximum price (Rs. 300/- per equity share) at which the buy-back would be carried out. If the buy-back is carried out at the said maximum price the acquirers’ shareholding in the Target Company would increase from existing 66.45% to 67.64% resulting in an increase in the shareholding/voting rights of the promoter group by 1.19%. However, the actual number of the shares to be bought back would depend upon the actual price paid for the equity shares bought back at different stages and amount deployed in the buy-back. I find that pursuant to the proposed buy back by the Target Company the shareholding of the acquirers would be less than 75%. The acquirers have also undertaken that in no case consequential increase in their shareholding pursuant to the proposed buy-back would breach the minimum public shareholding requirement (25%) as specified in the Listing Agreement with the concerned stock exchanges.
5.3 The acquirers have stated that they do not intend to participate in the buy-back of equity shares and the Target Company will not purchase any equity shares from the promoter group. I find that the increase in the acquirers’ shareholding and voting rights in the Target Company is only incidental to the proposed buy-back. Further, there would not be any change in control over the target company pursuant to said buy-back and consequential increase in the shareholding of the acquirers as the acquirers are the promoters of the target company and have control over the Target Company.
5.4 The price of buy-back is proposed as a price not exceeding Rs.300/- which is higher than the book value of Rs.53.06/- per share as on 31-03-2007 and current market price of about Rs.200/- per share.
5.5 I find that under the facts of the present case, the proposed transaction is not prejudicial to the interests of the public shareholders. In view of the above and taking into account all the facts and circumstances as mentioned above, I agree with the recommendations of the Takeover Panel and find that this is a fit case to grant exemption from making public announcement as required under regulation 11(2) of the Takeover regulations in respect of the proposed buy-back by the Target Company.
6.0 ORDER:-
6.1 In view of the above findings, I, in exercise of the powers conferred upon me by virtue of Section 19 of Securities and Exchange Board of India Act, 1992 read with sub-section (6) of regulation 4 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, hereby grant exemption to the acquirers from making public offer in terms of regulation 11(2) of the Takeover regulations in respect of the consequential increase in the voting rights of the acquirers pursuant to the proposed buy-back of the fully paid-up equity shares by the Target Company upto a maximum limit of 10% of its paid up equity capital and free reserves from Rs.614.33 million proposed to be deployed in the said buy-back.
6.2 The acquirers shall ensure that subsequent to the buy-back, the public shareholding in the Target Company shall not be reduced below 25% as required in the Listing Agreement and the price offered to the shareholders shall not be less than the market price and the buy-back shall be in compliance with the provisions of the Companies Act, 1956 and the SEBI (Buy-Back of Securities) Regulations, 1998.
6.3 This exemption is without prejudice to the applicability of other Acts, Rules, Regulations and Guidelines in respect of the proposed buy-back.
6.4 Application dated 31-03-2008 is disposed of accordingly.
Place: Mumbai
Date: July 24, 2008 T.C. Nair
WHOLE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA