SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
IN THE MATTER OF PROPOSED ACQUISITION OF SHARES OF COROMANDEL CEMENTS LIMITED – EXEMPTION APPLICATION FILED UNDER REGULATION 4(2) OF THE SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997.
WTMO/11 /CFD/ 09 /2005
1.0 BACKGROUND
1.1 M/s Coromandel Cements Limited (hereinafter referred to as ‘the target company’) is a public limited company incorporated under the Companies Act, 1956, having its registered office at No.6-3-652/C/A,Flat 5A, KAUTILYA, Amrutha Estates , Besides Medinova, Somajiguda, HYDERABAD-082.
1.2 The equity shares of the target company are listed on the Stock Exchange, Mumbai and Hyderabad Stock Exchange.
1.3 The following are the persons belonging to the promoter group (hereinafter referred to as ‘acquirers’) of the target company:
1. Shri. S.R.B Ramesh Chandra , Managing Director
2. Shri ,S.Chandra Mohan, Chairman,
3. Shri S. Kishore Chandra, Whole Time Director
The acquirers (i.e. promoter directors of the target company) made an application dated 22.01.05 under Regulation 4(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as ‘the Takeover Regulations’), seeking exemption from the compliance of Regulation 11(1) of Chapter III of Takeover Regulations with respect to the proposed acquisition of 30,00,000 equity shares of the target company through preferential allotment.
2.0 SUBMISSIONS MADE IN THE EXEMPTION APPLICATION
2.1 In the application dated 22.01.05 the acquirers, inter alia have made the following submissions -
2.2 The acquirers are promoter directors of the target company. The target company was incorporated in 1978 with main object to establish, construct, acquire, run and operate any factory for manufacturing cement and allied products. During 1994 the target company could not continue its operations and its net worth eroded due to continued losses and it became a sick unit. The target company then approached Board for Industrial and Financial Reconstruction under section 15 of Sick Industrial Companies (Special Provisions) Act, 1985 for sanctioning of its rehabilitation Scheme. The Industrial Development Bank of India (IDBI) was appointed as the Operating Agency. BIFR vide its order dated 08.05.96 sanctioned the Rehabilitation Scheme.
2.3 In accordance with the rehabilitation package the promoters of the target company have subscribed to 15, 66,710 equity shares of Rs 10 each of the target company and have brought in Rs. 1, 56, 67,100 into the target company and the target company has repaid all its dues to the financial institutions such as IDBI, IFCI, &ICICI to the tune of 6.09 crores. After this additional capital brought in by promoters, the shareholding of the promoters in the target company is 52.38% of the total paid up capital of the target company. Out of this 52.38% , the acquirers together hold 42.97% of the total paid up capital of the target company.
2.4 There is significant progress in terms of operational efficiency and productivity in target company. It has potential to improve the turnover substantially with additional capital of Rs. 20 crores. The target company had therefore, approached the bankers for term loan. Their bankers for term loans have insisted that the promoters shall bring in adequate margin money in the form of equity to improve debt / equity ratio for sanction of term loan. The acquirers (promoter – directors) desire to expand the operation of the target company. In this regard, they propose to infuse Rs. 3 crores into the capital of the target company by way of preferential allotment of equity shares at par.
2.5 The proposed preferential allotment of 30,00,000 equity shares (37% of the enhanced capital) to acquirers would result in an increase in the shareholding of the acquirer along with persons acting in concert with them from 52.38% to 70% in the target company. The said proposed allotment unless exempted under regulation 3 (1) would attract the provisions of regulation 11(1) of Takeover Regulations. The promoters have brought in Rs. 1,56,67,100 in accordance with the rehabilitation package and hence have become exhausted of funds to take the route of open offer to public. The acquirers are, therefore seeking exemption from open offer requirements under Takeover Regulations.
2.6 The proposed allotment would not result in change of control and management of the target company as the acquirer as a part of the promoter group which are in control of the target company. The target company is already maintaining the minimum public shareholding of 25%.
3.0 RECOMMENDATION OF THE TAKEOVER PANEL
3.1 The aforesaid application dated 22nd January, 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 07.04.05, has recommended as under –
“The acquirers are the core promoters of the target company having control over the affairs of the target company. None of them individually holding more that 15% but collectively hold about 43% of equity in the target company. The acquirers intend to bring in additional capital by way of preferential allotment to meet the working capital needs of the target company.
Taking the totality of the circumstances into consideration and facts stated, grant of exemption as sought is recommended subject to the compliance with the applicable provisions of the Companies Act, 1956.”
4.0 FURTHER SUBMISSIONS MADE BY THE ACQUIRER
4.1 The acquirers, vide letter dated June 02, 2005 further confirmed that they will comply with the following terms and conditions as per SEBI norms:
“(a) A General Meeting of shareholders is called for passing a fresh Special Resolution U/s 81(1A) of Companies Act for the said preferential allotment to prospective acquirer:
(b) Following disclosures are made in the explanatory statement U/s 173 of the Companies Act forming a part of the Notice:
- the price at which the allotment is proposed.
- the identity of such person(s)
- consequential changes, if any, in the board of directors of the -target company and in voting rights, the shareholding pattern of the company, and
- 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 13 of SEBI (Disclosure and Investor Protection) Guidelines, 2000 are complied with.
(d) 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 is provided,
(e) The prospective acquirers (promoter group) of the target company, being interested part to the resolution; abstain from voting in respect of the resolution.”
5.0. FINDINGS
5.1 I have carefully gone through the application dated 22nd January, 2005 and taken into consideration the relevant material available on record and the above mentioned recommendation of the Takeover Panel and the submission of the acquirers.
5.2 I find that the acquires are the promoters of the target company having control over the affairs of the target company. None of them is individually holding more that 15% but they collectively hold about 42.97% of equity in the target company.
5.3 It is also seen from the application that, the pre and post proposed allotment shareholding pattern in target company would be as follows:
|
Category of shareholders
|
Prior to proposed allotment
|
After the proposed allotment
|
|
|
% to Capital
|
% to Capital
|
|
Promoters
|
42.97
|
64.10
|
|
Directors / Relatives
|
9.38
|
5.90
|
|
Public
|
47.62
|
30.00
|
5.4 In terms of provisions of Regulation 11(1) of the Takeover Regulations an acquirer, who together with persons acting in concert with him has acquired 15% or more but less than 55% of the shares or voting rights in the target company, may acquire any additional share or voting right only if he makes a public announcement to acquire shares or voting rights in accordance with the said regulations. In the present case, the holding of the acquirers after the proposed preferential allotment would increase to 70% i.e. beyond 55%. Therefore, unless exempted under Regulation 3, the proposed acquisition would attract the provisions of Regulation 11(1) of the Takeover Regulations.
5.5 I note that Andhra Bank while considering the proposal of financial assistance to the target company has proposed that the promoters should bring Rs 3 crores or more in the form of equity share capital towards margin money. The acquirers ( promoter- directors) have therefore, proposed to infuse Rs 3 crores by preferential allotment of shares of the target company. The acquirers have submitted that the proposed acquisition is not for the purpose of acquiring control and management over the target company and also that the target company would continue to maintain more than 25% of the public shareholding post preferential allotment. In view of the above facts and circumstances, I find that, the present case is fit for granting exemption from the applicability of Regulation 11(1) of the Takeover Regulations.
6.0 ORDER
6.1 In view of the above findings, 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, namely Shri. S.R.B Ramesh Chandra, Managing Director and Promoter, S. Chandra Mohan, Chairman, and S. Kishore Chandra, Whole Time Director who are the Promoter Directors of Coromandel Cements Ltd, the target Company, from complying with regulation 11 (1) of Chapter III of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997, in the case of the proposed acquisition of 30,00,000 Equity Shares of Rs 10 each of the target company subject to the condition that the acquirers shall fulfill the terms and conditions of SEBI as confirmed by them vide their letter dated June 02, 2005,as submitted in para 4.1. However, this exemption is granted without prejudice to the rights of SEBI to take any action for violation, if any, of the Takeover Regulations.
6.2 The acquirer shall complete the transaction within ninety 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.
PLACE : MUMBAI MADHUKAR
DATE : September 23, 2005 WHOLETIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA