In the matter of Proposed Acquisition of Equity Shares of Salguti Plastics Ltd

SECURITIES AND EXCHANGE BOARD OF INDIA 

ORDER

WTMO/ 09 /CFD/ 05/2006

1.0 BACKGROUND

1.1 M/s Salguti Plastics 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 Hyderabad. The equity shares of the target company are listed on the Bombay Stock Exchange Ltd. (BSE) and the Hyderabad Stock Exchange Limited (HSE).

1.2 Shri S Rajitha Reddy, Shri S. Vishnu Vardhan Reddy along with persons acting in concert with them, namely, Shri M. Krishna Reddy, Salguti Finance & Investment Pvt. Ltd., Salguti Textiles Pvt. Ltd., Shri S. Gopal Reddy, Salguti Builders Pvt. Ltd., Kisan Oil Refinaries, Gadwal Power Projects Pvt. Ltd., Jurala Power Projects Pvt. Ltd., Shri M. Raghuvardhan Reddy, Shri M. Venkataiah, Shri G. Hanumanth Reddy, Shri K. Indira Reddy, Shri K. Ravender Reddy, Shri B. Ravinder Reddy, Shri B. Jyothi Reddy, Ms. M. Sulochana, Shri Sudheer R. Mallepalli, Shri Savitha R. Mallepalli, Shri S. Venkateswara Reddy, Shri S. Rajeswaramma belong to the promoter group of the target company and are together holding 26.34% of the total paid up capital of the target company. Shri S Rajitha Reddy, Shri S. Vishnu Vardhan Reddy and the persons acting in concert with them are hereinafter referred to as ‘the acquirers’.

1.3 The acquirers propose to acquire 25,00,000 equity shares of the face value of Rs. 10 each @ Rs. 16 per share of the target company. Pursuant to the proposed acquisition of 25,00,000 equity shares, the shareholding of the acquirers would increase from 26.34% to 50.76% and the holding of the promoter group would increase from 32.41% to 54.83% in the total paid up equity capital of the target company.  

2.0 APPLICATION FOR EXEMPTION -

2.1 Vide letter dated January 25, 2006, the acquirers  filed an application with the 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, (hereinafter referred to as “the Takeover Regulations’) seeking exemption from the applicability of Regulation 10, 11 and 12 of the Takeover Regulations with respect to the proposed allotment of 27,00,000 equity shares of the face value of Rs. 10 each @ 15 per share of the target company. However, vide letter dated February 23, 2006, the acquirers submitted that they propose to acquire only 25,00,000 equity shares of the face value of Rs. 10 each @ Rs. 16 per share of the target company.

2.2 The acquirers have inter alia made the following submissions,: -

a)     the acquirers are promoters of the target company .

b)     the target company which is presently engaged in the business of manufacturing of HDPE/PP woven sacks, is establishing a Textile Division with financial assistance from Bank of Baroda which has already appraised the project and sanctioned a term loan of Rs. 975.00 lakhs, with a condition that the promoters of the company shall bring in their contribution of Rs. 400.00 lakhs prior to release of term loan for the project.

c)      the target company is not in a position to raise funds by way of rights issue or preferential allotment to other investors.

d)     the acquires have come forward to bring in additional equity capital for the proposed project as insisted by the Bank and have proposed to take 25,00,000 equity shares of the face value of Rs. 10/- each @ Rs. 16/- per share.

e)     the shares of the target company are not being presently traded at the BSE and HSE, where the shares of the target company are listed. The book value of the shares of the target company is @ Rs. 14.92/- for the year 2004-2005.

f)        pursuant to the proposed preferential allotment to the acquirers, their holding would increase from 26.34% to 50.76% and the holding of the promoter group (including the acquirers and PACs) would increase from 32.41% to 54.83% in the total paid up capital of the target company.

2.2 The shareholding pattern of the target company before and after the proposed preferential allotment is as under:

Category	No. of shares(Before Acquisition)	% of Share Holding	No. of shares (After Acquisition)	% of shares holding
A. PROMOTERS HOLDING
1. Promoters
a. Indian	221000	4.39	1151000	15.27
b. NRI’s	--	--	--	--
2. Persons Acting in Concert	1411100	28.02	2981100	39.56
SUB TOTAL	1632100	32.41	4132100	54.83
B. NON-PROMOTERS HOLDING
3. Institutional Investors	--	--	--	--
a. Mutual Funds	--	--	--	--
b. Banks / F I’s APIDC	250000	4.96	250000	3.32
c. Foreign Institutions	--	--	--	--
SUB-TOTAL	250000	4.96	250000	3.32
4. OTHERS
a. Private Corporate Bodies	315400	6.26	315400	4.18
b. Indian Public	2836200	56.31	2836200	37.63
c. NRI’s	3000	0.06	3000	0.04
d. Any others	--	--	--	--
I. Foreign Corporate Bodies	--	--	--	--
ii. Foreign FIIS/Banks/FI’s/MF’s	--	--	--	--
iii. Trustees	--	--	--	--
SUB-TOTAL	3154600	62.63	3154600	41.85
GRAND TOTAL	5036700	100	7536700	100

 

3.0 RECOMMENDATION OF THE TAKEOVER PANEL –

3.1 The aforesaid application together with the subsequent letter dated February 23, 2006 sent by the acquirers were forwarded by SEBI to the Takeover Panel in terms of sub-regulation (4) of Regulation 4 of the Takeover Regulations. The Takeover Panel vide its report dated March 09, 2006 has recommended as under –

“On the facts stated in the Application and the letter dated 23^rd February, 2006 addressed by the Acquirers, it appears that grant of exemption as sought would be in the larger interests of the Shareholders. Subject to following SEBI Guidelines for issue of Shares on preferential allotment basis, grant of exemption as sought is recommended.”

4.0 FURTHER SUBMISSIONS

4.1  The target company has submitted an undertaking dated March 05, 2006 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 The undertakings dated March 05, 2006, on the above lines have also been submitted by Shri S Rajitha Reddy, Shri S. Vishnu Vardhan Reddy for themselves and on behalf of the persons acting in concert with them.

 5.0 FINDINGS

5.1           I have carefully considered the application dated January 25, 2006 the letter dated February 23, 2006 sent by the acquirers and have taken into consideration the above mentioned recommendations of the Takeover Panel, submissions of the acquirers and relevant material available on record.

5.2 It is observed that the proposed acquisition would trigger regulation 11(1) of the Takeover Regulations unless exempted under regulation 3 thereof. In this case as the preferential allotment is proposed to be made to the acquirers who are part of the promoter group and in control of the target company there will not be any change in control in the target company pursuant to the proposed acquisition.

5.3 I note that the target company is planning to establish a textile division with the financial assistance from the Bank of Baroda. The Bank of Baroda has appraised the project report of the proposed textile division and has sanctioned a term loan of Rs. 9,75,00,000/-. As per the terms of the sanction of term loan the promoters of the target company are required to bring in their contribution of Rs. 4,00,00,000/- prior to the release of funds for the project.

5.4 Accordingly, in order to avail the said loan facility from Bank of Baroda for establishing the textile division of the target company, the promoters have proposed to bring in their equity contribution by taking equity in the target company through preferential allotment. It is submitted by the acquirers that the target company 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 from making a public announcement as required under regulation 11(1) of the Takeover Regulations subject to the conditions as undertaken by the acquirers and the target company vide their letters dated March 05, 2006.

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 acquirers, namely Shri S Rajitha Reddy, Shri S. Vishnu Vardhan Reddy alongwith its PACs namely, Shri M. Krishna Reddy, Salguti Finance & Investment Pvt. Ltd., Salguti Textiles Pvt. Ltd., Shri S. Gopal Reddy, Salguti Builders Pvt. Ltd., Kisan Oil Refinaries, Gadwal Power Projects Pvt. Ltd., Jurala Power Projects Pvt. Ltd., Shri M. Raghuvardhan Reddy, Shri M. Venkataiah, Shri G. Hanumanth Reddy, Shri K. Indira Reddy, Shri K. Ravender Reddy, Shri B. Ravinder Reddy, Shri B. Jyothi Reddy, Ms. M. Sulochana, Shri Sudheer R. Mallepalli, Shri Savitha R. Mallepalli, Shri S. Venkateswara Reddy, Shri S. Rajeswaramma 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 25,00,000 equity shares of the face value of Rs. 10 each @ Rs. 16 per share 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  19, 2006