SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
IN THE MATTER OF PROPOSED ACQUISITION BY PREFERENTIAL ALLOTMENT OF EQUITY SHARES OF BPL LTD. BY ELECTRO INVESTMENT PVT LTD. – EXEMPTION APPLICATION FILED UNDER REGULATION 4(2) OF THE SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997.
WTMO/16/CFD/06/2006
1.0 BACKGROUND
1.1 BPL Limited (hereinafter referred to as ‘the target company’) is a company limited by shares incorporated under the Companies Act, 1956, having its registered office at Palakkad, Kerala. The equity shares of the target company are listed on the Bombay Stock Exchange Ltd. (BSE) and the National Stock Exchange Ltd. (NSE).
1.2 Electro Investment Private Ltd. (hereinafter referred to as ‘the acquirer’) is a part of the promoter group of the target company and currently holds 22.82 Lac shares constituting 8.24% of the paid up capital of the target company.
2.0 APPLICATION FOR EXEMPTION
2.1 Vide letter dated January 31, 2006, the target company forwarded an application dated 30.1.2006 of the acquirer to the Securities and Exchange Board of India (SEBI) made under regulation 4(2) read with regulation 3(1) (l) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997, (hereinafter referred to as “the Takeover Regulations’)
2.2 The said application has been filed seeking exemption from the applicability of Regulation 10 and 11 of the Takeover Regulations with respect to the proposed acquisition of 200 Lac equity shares of Rs. 10 each at a premium of Rs. 34.81 per share of the target company by the acquirer by way of preferential allotment. The exemption has been sought submitting inter alia the following:
a) the acquirer is a part of the promoter group of the target company and currently holds 8.24% of the paid up capital of the target company.
b) the target company is presently engaged in the business of consumer electronics, colour television receivers, black & white TV receivers and video cassette recorders.
c) due to low levels of capacity utilization, the target company’s Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) declined and turned negative for the period ended September 2003 and as a result of the ballooning of interest burden and increase in the total debt, the target company incurred a net loss of Rs.287 crore for the same period.
d) the target company undertook a comprehensive financial/business restructuring to revive the business.
e) a restructuring scheme was approved on 9.11.2004 by the Corporate Debt Restructuring (CDR) mechanism, set up by the Reserve Bank of India. Simultaneously an application was filed before the Hon’ble High Court of Kerala for approval of similar scheme under sections 391-394 of the Companies Act, 1956, in order to make this scheme applicable to all lenders, including those not covered by the CDR mechanism. This scheme was approved by the Hon’ble High Court of Kerala on 23.8.2005.
f) the funding requirements for pay out under negotiated settlements and for fresh working capital were to be met out of multiple sources including divestment of non core businesses, sale and investments with long gestation periods and contribution by promoters.
g) one of the sources of funding was a loan of Rs.92 crore to be raised from a foreign investor, to meet the gap in the amount required under the approved CDR Scheme. In order to save on the interest cost and servicing obligations on this loan, which will help in faster revival of the target company, promoters offered to bring in the required amount, which was accepted by the CDR Empowered Group.
h) the acquirer had paid Rs.92 crore to the target company to ensure settlement of the secured creditors, working capital for revival of the target company and payment of statutory dues, etc. The target company is not in a position to refund the sum to the acquirer and it is proposed that the funding to the target company be converted into equity by allotment of Rs.200 Lac equity shares of Rs.10 at a premium of Rs.34.81 per share pursuant to the applicable SEBI Guidelines.
i) Pursuant to the proposed acquisition of 200 Lac equity shares of the target company, the shareholding of the acquirer in the target company will be increased from 8.24% to 46.72% and the shareholding of the promoter group (including the acquirer) and persons acting in concert (PACs) would increase from 61.62% to 77.71% of the total paid up equity share capital of the target company.
3.0 RECOMMENDATION OF THE TAKEOVER PANEL
3.1 The aforesaid application dated January 30, 2006 in terms of sub-regulation (4) of Regulation 4 of the Takeover Regulations was forwarded to the Takeover Panel and the Takeover Panel vide its report dated March 02, 2006 has recommended as under:
“On the facts stated in the Application and in the subsequent letter dated 24th February, 2006 addressed by the target Company to the Securities and Exchange Board of India, it appears that the proposed conversion of loan into equity is in the larger interest of the public shareholding in the target Company and there is no likelihood of change in the control and management of the target Company, the Acquirer being a part of the promoter group of the target Company.
Subject to :
(i) the target Company passing the requisite resolution in accordance with Section 81(1A) of the Companies Act, 1956;
(ii) observation and compliance of Preferential Issues under Securities And Exchange Board of India (Disclosure & Investor Protection) Guidelines, 2000, and
(iii) maintaining public Shareholding at 25% of the enhanced paid up capital of the target Company, the grant of exemption as sought is recommended.”
4.0 FURTHER SUBMISSIONS
4.1 The target company, vide its letter dated 20.3.2006, has confirmed that the public shareholding at the level of 25% of the enhanced paid up share capital of the target company would be maintained. Accordingly, the preferential allotment would be made to the acquirer only up to 170 lac equity shares. After the proposed allotment of 170 lac equity shares to the acquirer the promoters’ shareholding in the target company would increase to 74.66% of the enhanced paid up capital of the target company. The revised and final shareholding pattern before and after the proposed preferential allotment of 170 lac equity shares by the target company to acquirer would be as follows:
|
Category
|
Before the proposed acquisition
No. of shares/ total voting rights held
|
% of Share Holding
|
After the proposed acquisition
No. of shares/ total voting rights held
|
% of Share Holding
|
|
Promoters
|
1,31,61,000
|
47.53
|
1,31,61,000
|
29.45
|
|
Acquirer
|
22,82,200
|
8.24
|
1,92,82,200
|
43.15
|
|
Directors and Relatives
|
9,19,000
|
3.32
|
9,19,000
|
2.06
|
|
FIs/Banks
|
5,46,310
|
1.97
|
5,46,310
|
1.22
|
|
FIIs/NRIs/ OCBs
|
2,42,703
|
0.88
|
2,42,703
|
0.54
|
|
Public
|
1,05,38,687
|
38.06
|
1,05,38,687
|
23.58
|
|
TOTAL
|
276,89,900
|
100.00
|
446,89,900
|
100.00
|
4.2 Vide its letters dated 20.03.06, 03.04.06 and 12.04.06, the target company has further conformed that:
i. the target company has complied with the Guidelines for Preferential Allotment including pricing as prescribed under Chapter XIII of the SEBI (Disclosure and Investor Protection) Guidelines, 2000.
ii. an Extra-Ordinary General Meeting of shareholders was convened on the 29th of March 2006 seeking the approval of the shareholders under section 81(1A) of the Companies Act, 1956 in respect of the proposed preferential allotment to the acquirer. In the EGM held on 29.03.06 wherein members and proxies representing 54.78% of the total equity of the company attended the meeting. The shareholders approved the special resolution under section 81 (1A) of the Companies Act in respect of preferential allotment of equity shares to the acquirer. This resolution was approved with the requisite majority of the shareholders other than promoter group (including the acquirer). The promoters had abstained from voting on the said resolution.
iii. the proposed preferential issue is a part of the approved restructuring scheme of the target company. The process of postal ballot will involve additional time, efforts and costs which the target company can ill afford at this stage of restructuring. Therefore the condition of passing of resolution by postal ballot in respect of the resolution may be waived.
iv. the public shareholding of the enhanced paid up share capital of the target company will be maintained at 25% of the enhanced paid up capital of the target company after the proposed preferential allotment of 170 lac to the acquirer .
5.0 FINDINGS:
5.1 I have carefully considered the application dated January 30, 2006 the letters dated March 20, 2006, April 03, 2006 and April 12, 2006 sent by the target company and have taken into consideration the recommendations of the Takeover Panel, submissions of the acquirer and relevant material available on record.
5.2 I note that in view of the revision regarding number of shares proposed to be allotted by the target company to the acquirer, the acquirers are proposed to be allotted 170 Lac equity shares pursuant to the proposed preferential allotment. Accordingly, the present case is considered in respect of the proposed preferential allotment of 170 lac equity shares to the acquirer. I note that the existing holding of the promoter group including the acquirer is more than 55% of the total paid up equity capital and hence the proposed acquisition would trigger regulation 11 of the Takeover Regulations unless exempted under regulation 3 thereof.
5.3 I note that the target company has proposed this preferential allotment to convert the advance of Rs. 92 crore advanced by the acquirer pursuant to the CDR Scheme approved by the CDR Empowered Group.
5.4 I further note that the EGM for passing the special resolution under section 81(1A) in respect of the proposed preferential allotment to the acquirer was held on 29.03.06. In the notice sent to the shareholders in terms of section 173 of the Companies Act the company had proposed to the shareholders that the proposed preferential allotment exclusively to the acquirer would be pursuant to and in accordance with the SEBI (Disclosure and Investor Protection) Guidelines, 2000 and subject to other approvals, permissions, etc. In accordance with section 173 (2) of the Companies Act, in the explanatory statement forming part of the Notice of Extra – Ordinary General Meeting the target company has inter alia disclosed the identity of proposed allottee (the acquirer), the object and intention of the proposed preferential 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 indicating that the acquirer being part of the promoter group who are in control of the target company, the proposed allotment would not result in change in control over the target company.
5.5 I also note from further submissions of the target company that the promoter group (including the acquirer) has abstained from voting on the special resolution. It has been further undertaken and submitted by the target company that the proposed preferential allotment shall be in accordance with the SEBI (Disclosure and Investor Protection) Guidelines, 2000 and that the proposed preferential allotment would not result in reducing the public shareholding below the limit of public shareholding specified in the listing agreement.
5.6 I have also taken note of the submission by the target company that the special resolution required under section 81 (1A) of the Companies Act has been passed by the shareholders of the company after making all requisite disclosures to the shareholders in the notice of EGM and explanatory statement thereto and that the condition of providing facility of voting through postal ballot would involve additional time, efforts and costs which the target company cannot afford. In view of these facts, I am of the view that condition of passing special resolution under section 81 (1A) of the Companies Act by providing facility of voting through postal ballot may not be insisted in this case.
5.7 In view of the above facts and circumstances of this case, 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 of the Takeover Regulations.
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 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, namely Electro Investment Private Ltd. from complying with the provisions of Regulation 11 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 with regard to the proposed preferential allotment of 170 Lac equity shares of the target company subject to the conditions that the acquirer and the target company shall ensure –
i). that in respect of the proposed preferential allotment the relevant norms including the norms regarding the pricing specified in SEBI (Disclosure and Investor Protection) Guidelines, 2000 are observed and complied with;
ii). that there is no reduction in the minimum level of public shareholding required as per the listing agreement pursuant to the proposed preferential allotment and the minimum level of public shareholding at 25% of the enhanced paid up capital of the target company is maintained.
6.2 The acquirer shall complete the proposed transaction within 30 days from the date of the order and 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 confirming compliance including conditions specified in this order.
T. C. NAIR
MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA
Place: Mumbai
Dated: June 14, 2006