SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
IN THE MATTER OF PROPOSED ACQUISITION OF EQUITY SHARES OF BALASORE ALLOYS LIMITED – EXEMPTION APPLICATION FILED UNDER REGULATION 4(2) OF THE SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS ) REGULATIONS, 1997
WTMO/07/CFD/ 05/2006
1.0 BACKGROUND
1.1 Balasore Alloys Ltd. (hereinafter referred to as ‘the target company’) is a company limited by shares incorporated under the Companies Act, 1956, having its registered office at Balgopalpur-756 020 Balasore Orissa. The equity shares of the target company are listed on the Bombay Stock Exchange Ltd. (BSE), Calcutta Stock Exchange Ltd. (CSE), Delhi Stock Exchange Ltd. (DSE) and the Bhubaneshwar Stock Exchange Limited (BhSE).
1.2 Goldline Tracom Pvt. Ltd., Ushaditya Investments Pvt. Ltd., Ispat Holdings Pvt. Ltd. and Mita Holdings Pvt. Ltd. (hereinafter referred to as ‘the acquirers’) belong to the promoter group of the target company. The acquirers hold 10.91% and the promoter group (including the acquirers) holds 27.47% in the total paid up capital of the target company. The acquirers propose to acquire 2 crores equity shares of the face value of Rs. 5 each of the target company by way of preferential allotment. Pursuant to the proposed allotment, the shareholding of acquirers would increase from 10.91% to 38.62% and the shareholding of promoter group (including the acquirers) would increase from 27.47% to 50.03% in the total paid up equity capital of the target company.
2.0 APPLICATION FOR EXEMPTION
2.1 Vide letter dated December 10, 2005, the acquirers filed an application with Securities and Exchange Board of India (SEBI) under regulation 4(2) read with regulation 3(1) (l) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997, (Takeover Regulations), seeking exemption from the applicability of regulation 10 and 11 of the Takeover Regulations with respect to the proposed preferential allotment of 2 crores equity shares of the face value of Rs. 5 each of the target company
2.2 In the said application the acquirers have inter alia made the following submissions: -
a. that their shareholding in the target company along with other promoters and persons acting in concert is 27.47% of the total paid up capital and the promoter group including the acquirers are having control over the target company.
b. the promoters (acquirers) are acquiring the shares of the target company as part of their contributions in terms of the Restructuring and the Corporate Debt Restructuring (CDR) proposal sanctioned by the CDR Cell of the Reserve Bank of India.
c. in terms of the CDR package , the promoters of the target company have to bring in fresh equity of Rs.22 crores, of which Rs. 10 crore to be brought in by April 2005, Rs. 5 crore in 2005-06, Rs. 5 crore in 2006-07 and Rs. 1 crore each during 2007-08 and 2008-09.
d. such allotment would increase the promoters’ shareholding in the target company by 22.56% in one financial year, thereby triggering regulation 11 of the Takeover Regulations and therefore, the exemption is being sought through this application from complying with the provisions of the Takeover Regulations.
e. the target company started incurring losses from the year 1999 – 2000 and made a reference to the Board of Industrial and Financial Reconstruction under section 15(1) of Sick Industrial Companies Act, 1985.
2.3 The shareholding pattern of the target company before and after the proposed preferential allotment is as under:
|
Shareholders’ category
|
|
|
|
|
Before the proposed acquisition
|
After the proposed acquisition
|
|
Promoter group
|
(As at 30th Sept. 2005)
|
% of shares/total voting capital held
|
|
Acquirers
|
|
10.91%
|
38.62%
|
|
Promoters Holding
|
|
27.47%
|
50.03%
|
|
FIs/Banks
|
|
7.62%
|
5.26%
|
|
FIIs/NIRs/OCBs
|
|
10.98%
|
7.56%
|
|
Public
|
|
53.93%
|
37.15%
|
|
Total
|
|
100.00%
|
100.00%
|
3.0 RECOMMENDATION OF THE TAKEOVER PANEL –
3.1 The aforesaid application dated December 10, 2005 was forwarded to the Takeover Panel in terms of sub-regulation (4) of Regulation 4 of the Takeover Regulations. The Takeover Panel vide its report dated February 21, 2006 has recommended as under –
“The acquirers representing the promoter group are already in control of the target company and it appears that in view of acquisition of these shares on preferential allotment basis, no change in the control of the target company would take place. The proposed acquisition shall further enhance Shareholding of the acquirers in the target company to 50.03%. The shares are intended to be allotted at a premium of Rs. 7.75 per share.
Subject to compliance of SEBI guidelines of preferential allotment of shares, the grant of exemption as sought, in the circumstances, is recommended. ”
4.0 FURTHER SUBMISSIONS
4.1 The target company vide letter dated March 18, 2006, has submitted an undertaking inter alia to the effect that -
i. A general meeting of shareholders of the target company will be called for passing a special resolution under section 81(1A) of the Companies Act, 1956 in respect of the proposed preferential allotment to the acquirers.
ii. Target company shall make the following disclosures in the explanatory statement in terms of Section 173 of the Companies Act forming part of the Notice of General Meeting:
· The price at which the allotment is proposed.
· The identity of proposed allottees.
· The purpose of and reason for such 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, 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 shall be complied with.
iv. In respect of the resolution under section 81(1A), the 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 will be provided. The notice to the shareholders shall include a postage pre-paid envelope for facilitating the consent or dissent.
v. The acquirers (promoter group shareholders) of the target company, being interested party to the resolution, shall abstain from voting in respect of the said resolution under Section 81(1A) of the Companies Act, 1956.
4.2 Similar undertaking was also given by one of the acquirers namely, Ispat Holdings Pvt. Ltd., vide its letter dated Mach 20, 2006. The said acquirer vide letter dated January 30, 2006, informed SEBI that the acquirers mentioned in the application are subsidiaries of M/s Global Steel Holdings Ltd., which is named as a promoter of the target company in terms of the declaration made under clause 35 of the Listing Agreement.
5.0 FINDINGS
5.1 I have carefully considered the application dated December 10, 2005 sent by the acquirers and have taken into consideration the above mentioned recommendations of the Takeover Panel, further submissions of the acquirer and relevant material available on record.
5.2 I note that the target company had suffered losses and that the proposed preferential allotment is for the purpose of improving the financial condition of the target company. I have also noted the intention of the acquirers to contribute Rs. 25.50 crores for the revival of the target company. I note that the CDR Cell of the Reserve Bank of India (RBI) granted its approval to the restructuring proposal of the target company on April 20, 2005.
5.3 In terms of the aforesaid restructuring and CDR approval, the acquirers / promoters of the target company are bringing in their contribution in the form of equity participation in the company. The company will have to make preferential allotment of shares to the promoters for the amount of money (Rs. 13.50 crores) already brought in and for the balance amount of money (Rs. 12.00 crores) that the promoters would bring in. If the shares are not allotted to the promoters then it would result in failure of the CDR proposal, thereby causing extreme financial burden on the target company and resulting in loss to the shareholders. The proposed allotment shall not, in any way, prejudice the interests of any shareholder or creditor of the company and that there would not be any change in control over the target company after the proposed preferential allotment to acquirers who are part of promoter group of the target company.
5.4 I have noted that the intention of the acquirers is to revive the operations of the target company and that in the absence of infusion of capital by the acquirers, there is no possibility of revival of the operations of the target company, as it is stated by the target company that it is not in a position to raise funds by rights or preferential allotment to other investors.
5.5 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 complying with regulation 11(1) of the Takeover Regulations subject to the conditions as undertaken by the target company and the acquirers vide their letters dated March 18, 2006 and March 20, 2006.
6.0 ORDER
6.1 In view of the above findings, I , in exercise of the powers conferred 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 acquirers namely, Goldline Tracom Pvt. Ltd., Ushaditya Investments Pvt. Ltd., Ispat Holdings Pvt. Ltd. and Mita Holdings Pvt. Ltd. from complying with the provisions of Regulation 11(1) of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 with regard to the proposed preferential allotment of 2 crores equity shares of the face value of Rs. 5 each of the target company, subject to the condition that, the acquirers and the target company shall comply with the undertakings as mentioned in paragraph 4.1 and 4.2 above.
6.2 I further direct that the formalities in respect of proposed preferential allotment shall be completed within 90 days of receipt of this order and the acquirers shall file a report with SEBI in the manner specified in regulation 3(4) read with regulation 3(5) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
T. C. NAIR
MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA
Place: Mumbai
Dated: May 17, 2006