SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
IN THE MATTER OF PROPOSED ACQUISITION OF SHARES OF POLAR INDUSTRIES LTD. (EXEMPTION APPLICATION FILED UNDER REGULATION 4 (2) OF THE SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997)
WTMO/17/AKB/CFD/06/04
1.0 BACKGROUND
1.1 Polar Industries Ltd. (hereinafter referred to as ‘the target company’) is a company incorporated under the Companies Act, 1956 and having its registered office at 113, Park Street, Kolkata. The target company was promoted by late Shri Sajjan Kumar Agarwal and his two sons namely, Shri Anil Agarwal and Shri Sunil Agarwal.
1.2 The equity shares of the target company are listed at the Stock Exchange, Mumbai, National Stock Exchange of India Ltd. , Delhi Stock Exchange Association Ltd. and the Calcutta Stock Exchange Association Ltd.
1.3 Shri Anil Agarwal, Shri Sunil Agarwal, Smt. Shailja Agarwal , Smt Savitri Devi Agarwal and Smt Vinita Agarwal are the shareholders of the target company [hereinafter referred to as ‘the acquirers’] and they are holding shares aggregating to 47.28% in the target company together with persons acting in concert namely, R. R. & Sons Trading Co. Ltd., Higain Consultancy Services (P) Ltd., Concrete Consultancy Services (P) Ltd., Prestige Electricals (P) Ltd., Sheffield Appliances Ltd., Mayur Vyapar (P) Ltd., Polar Electricals Ltd., Leopard Financiers (P) Ltd., Opal Investment (P) Ltd., Yucon Marketing & Investments (P) Ltd., Great Investments (P) Ltd., Fluidyne Commodities (P) Ltd., Arunima Investment (P) Ltd., Polar Overseas Ltd. (hereinafter collectively referred to as ‘the acquirers and persons acting in concert’). The acquirers propose to acquire 25,04,500 equity shares Rs. 10 each in cash by way of preferential allotment in terms of the first debt restructuring and corporate debt restructuring approval.
2.0 APPLICATION FOR EXEMPTION
2.1 The acquirers made an application dated April 10, 2004 to the Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) under sub-regulation (2) of regulation 4 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as ‘the said Regulations’) seeking exemption from making a public offer in respect of the proposed acquisition of 25,04,500 equity shares by way of preferential allotment of the equity shares of the target company from the applicability of regulation 11 ( 1) of the said Regulations. The shareholding of the acquirers and persons acting in concert in the target company would increase by 9.69% due to the proposed acquisition.
2.2 As per the aforesaid application filed by the acquirers, the shareholding pattern of the target company before and after the proposed acquisition, is as follows:
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Category
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Pre- allotment (No. of shares and percentage )
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Post – Allotment (No. of shares and percentage )
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Acquirers and persons acting in concert
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52,62,999 ( 47.28 % )
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77,67,499 ( 56.97 % )
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Financial Institutions and Banks
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39,60,217 ( 35.58 % )
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39,60,217 ( 29.04 % )
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Foreign Institutional Invetsors/ Non Resident Indians/ Overseas Commercial Bodies.
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2,89,88 ( 0.26 % )
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2,89,88 ( 0.21 % )
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Public
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18,78,209 ( 16.87 % )
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18,78,209 ( 13.77 % )
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3.0 SUBMISSIONS IN THE EXEMPTION APPLICATION
In the aforesaid application dated April 10, 2004 , the acquirers, interalia, submitted that:
a. the failure of certain projects put considerable financial pressure on the target company and therefore the target company was forced to negotiate a one-time settlement with the banks and financial institutions which had funded the said projects.
b. the overall recession in trade and industry coupled with an acute financial crunch, the target company was not able to produce and outsource the desired quantities of production.
c. in the year 2000-01, the target company was able to restructure its financial debt. All term lending institutions viz., IFCI, ICICI, IDBI, IIBI, LIC, GIC etc. granted formal approval for restructuring of the debt.
d. inspite of the above financial restructuring, there was no improvement in the financial health of the target company. The target company made an application to all the banks and financial institutions for the restructuring of all its debts.
e. in terms of the corporate debt restructuring approval, the promoters of the target company are bringing in their contribution in the form of equity participation in the target company.
f. the present holding of acquirers and persons acting in concert is 47.28%. and with the allotment of shares against the contribution brought in under first debt restructuring and corporate debt restructuring approval, the holding of the acquirers and persons acting in concert would increase by 9.69% to 56.94%.
g. the allotment of shares shall be in due compliance of the preferential allotment guidelines of SEBI in terms of pricing of the shares. The allotment shall not in any way prejudice the interest of any shareholder or creditors of the target company. On the contrary, non-allotment of the shares would result in failure of the corporate debt restructuring proposal and thereby causes extreme financial burden on the target company and ultimately results in loss to the creditors and shareholders of the target company.
h. the acquirers and persons acting in concert were already in control of the target company and there would not be any change in the composition of the board of directors of the target company.
4.0 CONSIDERATION OF THE APPLICATION
4.1 The aforesaid application dated April 10, 2004 was forwarded by SEBI to the Takeover Panel in terms of sub-regulation (4) of regulation 4 of the said Regulations. The Takeover Panel vide its report dated April 30, 2004 has recommended for exemption to the acquirers from making an open offer. The Takeover Panel interalia has observed in its report that it appears that the proposed allotment of equity shares to the acquirers by way of preferential allotment was not to acquire control of the target company but in terms of first debt restructuring and corporate debt restructuring approved by CDR Cell for revival of the target company . The Takeover panel has further observed that by the proposed allotment the net worth of the target company was likely to go up which would be in the interests of the shareholders of the target company. In view of the above, the Takeover panel has recommended for grant of exemption for making an open offer.
5.0 I have perused the documents on record and noted that the proposed acquisition of shares in the target company by the acquirers is by way of preferential allotment in terms of the debt restructuring proposal as approved by corporate debt restructuring cell for revival of the target company. It is also noted that the acquirers are already in control of the target company and that there would not be any change in the composition of the board of directors of the target company pursuant to the proposed acquisition.
6.0 I have further noted that as per regulation 20 of the said Regulations, the minimum offer price would be Rs. 5.93/- per share, however, the price of the equity shares in the proposed acquisition is Rs. 10/- per share. It is further noted that the shareholders of the target company are not prejudice by the proposed acquisition.
7.0 In view of the above facts and circumstances , I conclude that it is a fit case for granting exemption from making an open offer as stipulated in regulation 11 ( 1 ) of the said Regulations, subject to certain conditions.
ORDER
8.0 Having regard to the above, and the recommendations made by the Takeover Panel and also in the interest of the public shareholders of the target company, I, in exercise of the powers conferred upon me under 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 acquirers from making an open offer subject to the fulfilment of the following conditions.
i) The target company shall convene a general meeting of shareholders for passing a fresh special Resolution u/s 81(1A) of Companies Act,1956 for the aforesaid said preferential allotment to the acquirers.
ii) The target company shall make the following disclosures in the explanatory statement u/s 173 of the Companies
Act ,1956 forming a part of the notice
a the price at which the allotment is proposed,
b the identity of such person(s),
c the purpose of and reason for such
allotment,
d consequential changes, if any, in the board of directors of the target company and in voting rights, the shareholding pattern of the company,
and
e whether such allotment would result in change in control over the target company
iii) The acquirers have to comply with the Guidelines for Preferential Allotment, including pricing as prescribed under Chapter XIII of SEBI (Disclosure and Investor Protection) Guidelines, 2000
iv) The target company shall provide facility of voting through postal ballot for passing of the special resolution as per the procedure laid down for postal ballot in rule 2A and rule 5 of Companies (Passing of the Resolution by Postal Ballot) Rules, 2001.
v) The acquirers being interested parties to the resolution would abstain from voting in respect of the resolution
vi) The acquirers are also directed to
a) file a report under regulation 3(4) of SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations, 1997, with SEBI on completion of the proposed acquisition.
b) file a certificate of Auditor / independent Chartered
Accountant to the effect that applicable provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 / conditions as stated above have been complied with along with the aforesaid report.
8.1 In case of failure of the acquirers to comply with the aforesaid
conditions while making the preferential allotment, the acquirers shall be liable to make open offer in terms of the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, without prejudice to any other action SEBI may take in terms of the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and the SEBI Act 1992.
9.0 This order shall come into force with immediate effect.
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A. K. BATRA |
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Date: Jun 14, 2004
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WHOLE TIME MEMBER |
| Place: MUMBAI |
SECURITIES AND EXCHANGE BOARD OF INDIA |