ORDER
IN THE MATTER OF PROPOSED ACQUISITION OF SHARES OF ROLLATAINERS LTD. – APPLICATION F0R EXEMPTION UNDER REGULATION 4(2) OF THE SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997
NO. : CO/62/TO/06/2003
1.0 Mrs. Vidyawati Bhargava, Mrs. Anita Bhargava, Ms. Aditi Bhargava, Mr. Sidhartha Bhargava, Mr. R.K. Bhargava (H.U.F.), Mr. M.L. Bhargava (H.U.F.), Mr. Y. Bansal, Mrs. Asha Bansal, Contra Pack Pvt. Ltd., Cosmos Pack Systems Pvt. Ltd., Rolls Print Co. Pvt. Ltd., Mr. Aman Bansal, Pushpa Bhargava, are the Promoters (hereinafter collectively referred to as the `Acquirers’/ ‘Promoters’ ) of Rollatainers Ltd. (hereinafter referred to the `Target company’). The Acquirers/Promoters propose to acquire 32,10,000 equity shares constituting 31.93% shares of the post issued capital of the Target company at the price of Rs.10/- per share through preferential allotment by conversion of unsecured loan extended by the Acquirers /Promoters to the Target company.
1.1 As a result of the proposed acquisition, the Acquirers /Promoters shareholding will increase from 35.29% shares to 55.95% shares in the equity capital of the Target company and they will have to make an open offer to the public shareholders of the Target company in terms of sub regulation (1) of regulation 11 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as "the Regulations").
1.2 The shares of the Target company are listed at the Mumbai Stock Exchange, Delhi Stock Exchange, Hyderabad Stock Exchange and Calcutta Stock Exchange.
2.0 The Acquirers / Promoters made an application dated 01-05-2003 under sub-regulation (2) of regulation 4 of the Regulations to the Securities and Exchange Board of India (hereinafter referred to as “SEBI”) seeking exemption from compliance of the provisions of sub regulation (1) of regulation 11 of the Regulations.
3.0 In the aforesaid application, the Acquirers / Promoters, inter-alia, submitted the following:
(i) The Acquirers /Promoters of the Target Company hold 35.29% of the equity shares capital.
(ii) Shareholding pattern of the Target company before and after the proposed acquisition will be 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/ voting rights
|
% of shares/ voting rights
|
|
Promoter group
|
22
|
2414478
|
35.29
|
5624478
|
55.95
|
|
Acquirers
|
|
|
|
|
|
|
FIs/ Banks
|
14
|
1565482
|
22.88
|
565482
|
15.58
|
|
FIIs/NRIs/OCBs
|
6
|
3234
|
0.05
|
3234
|
0.03
|
|
Public
|
7535
|
2858808
|
41.78
|
2858808
|
28.44
|
|
Total
|
7577
|
6842002
|
100
|
10052002
|
100
|
(iii) The Target Company is a listed company and has been suffering financial losses for the last 3 years. In view of the financial losses the Target company has undertaken a business and financial restructuring which is sanctioned by ICICI Bank Limited and IDBI. During the course of restructuring the Acquirers /Promoters have advanced unsecured loans of Rs.3.21 Crores in discussion with the said Financial Institutions.
(iv) In terms of the sanction by IDBI vide its letter dated 07.11.2002 , the Acquirers / Promoters have been asked to convert their unsecured loans extended to the Target Company amounting to Rs.3.21 Crores into equity shares of a face value of Rs.10/- each to be issued to them at par. Para no.7 and 18 of IDBI’s Letter are quoted as under:
“7. The promoters would pledge their entire shareholding of Rs.241.86 lakhs in RTL alongwith the proposed equity aggregating to Rs.355.86 lakhs (on account of conversion of unsecured loans from the promoters into equity) with IDBI in dematerialized format. The said pledge shall rank pari-passu with other term lenders.”
“18. RTL/RTPBL will be granted permission for sale of surplus land & building and equipments only after RTL raises at least Rs.1440 lakh by way of equity and preference share capital from CDC and converts unsecured loans of Rs.3.21 lakh from promoters into equity share capital and comply with the conditions mentioned from 1 to 13 and 17 above. The sale proceeds shall be utilized towards liquidation of institutional/bank dues.”
Note: RTL above stands for Rollatainers Limited, the Target Company in question.
(v) As such, the Acquirers /Promoters will be allotted 32,10,000 equity shares of the Target company by way of preferential allotment. This allotment to the Acquirers /Promoters would increase the holding of the Acquirers /Promoters from present 35.29% calculated on the present paid up capital to 55.95% of the total paid up capital after the proposed acquisition thereby giving them additional 20.66% equity shares/voting rights of the Target company.
(vi) The entire shareholding of the Acquirers / Promoters including the proposed acquisition shall be pledged with the Financial Institutions. Further, no acquirer would acquire shares merely for making a short term monetary gain by sale when he knows the shares would be pledged as soon as they are acquired.
(vii) The Target company is already in acute financial distress. Given the current financial performance of the Target company and also the share prices, which are prevailing at or about Rs.5.60 (Source : The Economic Times dated 01.05.2003, 30.04.2003, 29.04.2003 and 22.04.2003) and such prices have continued for a considerable period of time, no equity shareholder is likely to subscribe to the rights issue, if made. Therefore, the Acquirers/Promoters had undertaken to bring in the money. The fund infusion of Rs.3.21 Crores was made by selling a residential home in Delhi where the promoters were living and this fact is fully in the knowledge of the Financial Institutions.
(viii) The proposed conversion of unsecured loans to equity to be issued to the Acquirers /Promoters is as per the stipulations laid down by the Financial Institutions mainly to restructure the Target company so that it can be brought out from the present financial distress.
(ix) Given the present position of the Acquirers /Promoters it would not be possible for them to acquire additional 20% shares from the public in term of Regulation 11(1) of the Regulations since it would involve substantial costs to acquire additional 20% shares from the public in terms of the total acquisition cost, legal expenses involved in appointing the Merchant Bankers, Registrar to the Offer, publication, etc. of the public announcement and the letter of offer.
(x) It would also not be fair to call upon the Acquirers / Promoters to purchase shares from the public at Rs.10/- (being equal to the price of this proposed allotment) when the book value of the shares is negative and the quoted price has been around Rs.5.65/- approx. throughout the year. If the Acquirers/Promoters had more funds they would have put in for the revival of the Target company. Indeed, both IDBI and ICICI Bank Limited are aware that the Acquirers /Promoters are negotiating with the Venture Capitalists to invest in the Target company as the Acquirers/Promoters do not have the funds.
4.0 The abovesaid application for exemption dated May 01, 2003 was forwarded to the Takeover Panel on May 08, 2003 in terms of sub-regulation(4) of regulation 4 of the Regulations. The Takeover Panel vide its report dated May 15, 2003 has recommended, inter alia, as under:
“On the facts stated in the application, it appears that the promoters of the target company hold 35.29% of the equity shares capital; the promoters had extended an unsecured loan of Rs.3.21 crores to the target company; and, as per the financial restructuring package stipulated by ICICI Bank Limited and IDBI, the financial institutions, the promoters have been asked to convert their unsecured loans into equity shares of the target company and as such, the promoters will be allotted 32,10,000 equity shares of the target company by way of preferential allotment which along with present shareholding of the promoters shall be pledged with the financial institutions. Taking totality of circumstances into consideration, grant of exemption as sought is recommended.”
5.0 I have taken into consideration the application dated May 01, 2003, the facts and documents available on record and also the recommendation of Takeover Panel.
6.0 I have noted that the Acquirers/Promoters hold 35.29% of the equity shares capital of the Target company and the Target company has been suffering financial losses for the last 3 years.
7.0 I have noted that in view of the financial losses, the Target company has undertaken a business and financial restructuring which is sanctioned by ICICI Bank Limited and IDBI.
8.0 I have noted that given the current financial performance of the Target company and also the share prices, which are prevailing for a considerable period of time at or about Rs.5.60, no equity shareholder is likely to subscribe to the rights issue, if made. Therefore, the Acquirers/Promoters had undertaken to bring in the money.
9.0 I have noted that during the course of restructuring the Acquirers / Promoters have advanced unsecured loans of Rs.3.21 crores in discussion with the said Financial Institutions. Further in terms of the sanction by IDBI vide its letter dated 07.11.2002 , it has asked the Acquirers /Promoters to convert their unsecured loans extended to the Target company amounting to Rs.3.21 Crores into equity shares of a face value of Rs.10/- each to be issued to them at par.
10.0 I have noted that , the Acquirers /Promoters will be allotted 32,10,000 equity shares of the Target company by way of preferential allotment. This allotment to the Acquirers /Promoters would increase the holding of the Acquirers/ Promoters from present 35.29% calculated on the present paid up capital to 55.95% of the total paid up capital after the proposed acquisition thereby giving then additional 20.66% equity shares/voting rights of the Target company.
11.0 I have noted that in terms of IDBI’s sanction letter, the entire shareholding of the Acquirers /Promoters including the proposed acquisition shall be pledged with the Financial Institutions.
12.0 I have noted that the proposed conversion of unsecured loans to equity to be issued to the Acquirers/Promoters is as per the stipulations laid down by the Financial Institutions mainly to restructure the Target company so that it can be brought out from the present financial distress.
13.0 I find merit in the aforesaid submissions of Acquirers/Promoters in view of the fact that the allotment of shares to the extent of 20.66% of shares in favour of Acquirers/Promoters is being done pursuant to financial restructuring of the Target company as advised by the Financial Institutions viz. IDBI and ICICI to take the Target company out of the financial distress. Further, in my view such proposed acquisition of shares of the Target company to the extent of 20.66% in favour of Acquirers/Promoters will not adversely affect the interest of the shareholders if the aforesaid acquisition is approved by the shareholders by way of passing of resolution in the general meeting of the Target company.
14.0 I have noted that the Panel has recommended grant of exemption as sought by the Acquirers /Promoters.
15.0 Taking into consideration the above, the recommendation of the Takeover Panel and the interest of the public shareholders of the Target company, in exercise of the powers conferred upon me under sub section (3) of Section 4 of the Securities and Exchange Board of India Act 1992( hereinafter referred to as “SEBI Act” ) read with sub regulation (6) of regulation 4 of the Regulations for the reasons recorded hereinabove, I hereby, grant exemption to the Acquirers/Promoters from complying with the provisions as contained in Chapter III of the Regulations with regard to the proposed preferential allotment of 32,10,000 equity shares of the Target company in favour of the Acquirers/Promoters subject to fulfillment of the following conditions :-
a. A general meeting of shareholders of the Target company be called for passing a fresh special Resolution u/s 81(1A) of Companies Act for the said preferential allotment in favour of the Acquirers/Promoters
b. Following disclosures be made in the explanatory statement u/s 173 of the Companies Act forming a part of the Notice :
i) the price at which the allotment is proposed,
ii) the identity of such person(s),
iii) the purpose of and reason for such allotment,
iv) 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
v) whether such allotment would result in change in control over the Target company
c. The guidelines for preferential allotment (including pricing) as prescribed under Chapter XIII of SEBI (Disclosure and Investor Protection) Guidelines, 2000 as amended from time to time be complied with.
d. The Acquirers/Promoters being interested party to the resolution, shall abstain from voting in respect of the resolution.
16.0 The Acquirers /Promoters are also directed that :-
(i) the proposed preferential allotment be completed within 3 months from the date of passing of this Order and a report under Regulation 3(4) on the same shall be filed by the Acquirers /Promoters with SEBI.
(ii) a certificate of Auditor / independent Chartered Accountant to the effect that all applicable provisions of the Regulations / conditions as stated hereinbefore have been complied with shall also be submitted to the SEBI along with the report.
17.0 In case of failure of the Acquirers/Promoters to comply with the aforesaid conditions while making the preferential allotment, the Acquirers /Promoters shall comply with Regulation 11(1) of the Regulations, and shall also liable to any other action that SEBI may take in terms of the Regulations and SEBI Act.
G.N. Bajpai
Chairman
Securities and Exchange Board of India
Date:June 25, 2003
Place: Mumbai