WTM/GA/26/CFD/9/07
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 SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997.
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 of India 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 43.15% of the paid up capital of the target company.
2.0 APPLICATION FOR EXEMPTION
2.1 Vide letter dated May 21, 2007, the target company forwarded an application of the acquirer under regulation 4(2) read with regulation 3(1) (l) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 1997, (hereinafter referred to as the Takeover Regulations) to Securities and Exchange Board of India (SEBI).
2.2 The said application has been filed seeking exemption from the applicability of Regulation 10, 11(1) and 11(2) of the Takeover Regulations with respect to the proposed acquisition of 38,20,344 equity shares of the target company by the acquirer by way of preferential allotment, in the following manner:
i. 30,00,000 shares of Rs.10/- at a premium of Rs.33.02 per share and
ii. 8,20,344 shares of Rs.10/- at a premium of Rs.62.99 per share.
2.3 The exemption has been sought inter alia on the following grounds:
a) the acquirer is one of the existing share holders and belonged to the promoter group of the target company and currently holds 43.15% of the paid up capital of the target company.
b) 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.
c) target company undertook a comprehensive financial/ business restructuring to revive the business.
d) a restructuring scheme was approved on December 9, 2004 by the Corporate Debt Restructuring (CDR) mechanism, set up by the Reserve Bank of India.
e) 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.
f) 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.
g) the acquirer had paid Rs.92 crore to the target company to ensure settlement of the secured creditors, working capital for its revival and payment of statutory dues, etc. The target company was not in a position to refund the sum to the acquirer and it was proposed that the balance of the funding to the target company be converted into equity by allotment of 38,20,344 equity shares of Rs.10 at a premium pursuant to the applicable SEBI Guidelines.
h) Pursuant to the proposed acquisition of 38,20,344 equity shares of the target company, the shareholding of the acquirer alongwith persons acting in concert would increase from 66.26% to 68.91% of the total paid up equity share capital of the target company.
i) The shareholding pattern of the target company as per the aforesaid application is as under:-
|
Category
|
Number of registered shareholders as on date of application
|
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
|
|
Promoter group
|
10
|
1,03,26,000
|
23.11
|
1,03,26,000
|
21.29
|
|
Acquirer
|
1
|
1,92,82,200
|
43.15
|
2,31,02,544
|
47.62
|
|
FIs/Banks
|
8
|
4,84,260
|
1.08
|
4,84,260
|
1.00
|
|
FIIs/NRIs/ OCBs
|
145
|
13,89,740
|
3.11
|
13,89,740
|
2.86
|
|
Public
|
22,269
|
1,32,07,700
|
29.55
|
1,32,07,700
|
27.23
|
|
Total
|
22,433
|
446,89,900
|
100.00
|
4,85,10,244
|
100.00
|
3.0 RECOMMENDATION OF THE TAKEOVER PANEL
3.1 The aforesaid application dated May 21, 2007 was forwarded to the Takeover Panel in terms of sub-regulation (4) of Regulation 4 of the Takeover Regulations and the Takeover Panel vide its report dated July 9, 2007 (forwarded to SEBI vide letter dated July 11, 2007) has recommended as under:
“The Panel considered application and the documents as well as the department’s comments and found that successful implementation of CDR package is in the interest of share holders as stated by the applicant. There would be no change in the control and management of the company as a result of this preferential allotment as acquirer is one of the existing shareholders from the present promoter group. The Panel therefore finds that there is no hitch in recommending the proposal and recommends accordingly”.
4.0 FURTHER SUBMISSIONS
4.1 The target company/ acquirer vide their separate letters dated July 30, 2007, have further confirmed the following:
i) A general meeting of shareholders of target company was called for passing a special resolution u/s 81(1A) of the Companies Act, 1956 for the said preferential allotment.
ii) Following disclosures were made in the explanatory statement u/s 173 of the Companies Act, 1956 forming 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 target company has complied with the Guidelines for Preferential Allotment including pricing as prescribed under Chapter XIII of the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000.
iv) 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” was provided. The notice of shareholders was sent by registered post, including a postage pre-paid envelope for facilitating the consent or dissent.
v) The resolutions covered by the postal ballot have been passed with the requisite votes even after the votes cast by the prospective acquirer are disregarded.
vi) The public shareholding of the enhanced paid up share capital of the target company will be maintained around 31% of the enhanced paid up capital of the target company.
4.2 The target company vide letter dated August 6, 2007 re iterated the following :
i) The allotment of 2,00,00,000 equity shares (of which the proposed 30,00,000 shares is a part) was approved by the shareholders at their Extra – Ordinary General Meeting held on March 29 2006. The minimum offer price with the said Relevant Date was Rs.43.02 per share including the share premium of Rs.33.02 per share.
ii) The allotment of 8,20,344 equity shares was approved by the shareholders through Postal Ballot conducted during April – May 2007. Accordingly, the relevant date was April 20, 2007 and the minimum offer price with reference to the said date was Rs.72.99 per share including the share premium of Rs.62.99 per share.
iii) The shareholders have approved allotment of equity shares up to 15 lakhs shares in the above postal ballot. Considering the balance of amount that would be left with the target company, application has been made for 8,20,344 shares.
5.0 FINDINGS:
5.1 I have carefully considered the application dated May 21, 2007, the recommendations of the Takeover Panel, further submissions of the acquirer and relevant materials available on record.
5.2 I note that the target company has proposed the present 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. I further note that the target company was not in a position to refund the said amount to the acquirer and it was proposed by the target company to convert the said amount into equity by allotment of 200 lakh equity shares of Rs.10/- at a premium. I note that,out of the said 200 lakh equity shares, the target company had allotted 170 lakh shares to the acquirer and that SEBI vide order dated June 14, 2006 granted exemption from complying with the provisions of regulation 11(1) of the Takeover Regulations in respect of the said acquisition. The acquirer vide its application mentioned above has sought exemption in respect of the proposed preferential allotment for the balance 30 lac shares and further allotment of 8,20,344 shares of the target company.
5.3 I note that the acquirer is a part of the promoter group of the target company and currently holding 66.26% together with the other promoters of the target company. Pursuant to the proposed acquisition, the shareholding of the promoter group (including the acquirer) would increase to 68.91% of the equity capital of the target company. I also note that there would not be any change in control pursuant to the proposed preferential allotment as the acquirer being the part of the promoter group is already in control of the target company.
5.4 It has been further undertaken and submitted by the target company that the proposed preferential allotment shall be in accordance with the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 and that the proposed preferential allotment would not result in reduction in the public shareholding.
5.5 I further note that the proposed allotment of shares was already approved by the shareholders of the target company at their Extra ordinary General Meeting (EGM) held on March 29, 2006. I have also taken note of the submission by the target company that the said special resolution 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. The target company and the acquirer have already informed SEBI that, in the notice sent to the shareholders in terms of section 173 of the Companies Act, the target company had proposed to the shareholders that the proposed preferential allotment would be exclusively to the acquirer and that the said allotment would be pursuant to and in accordance with the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 and that it would be subject to other regulatory approvals, permissions etc.
5.6 In view of the above, I agree with the recommendations of the takeover panel and consider the present case as a fit case for granting exemption from the provisions of Regulation 11(2) 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 Securities and Exchange Board of India (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(2) of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 with regard to the proposed preferential allotment of 30,00,000 shares of Rs.10/- at a premium of Rs.33.02 per share and 8,20,344 shares of Rs.10/- at a premium of Rs.62.99 per share of the target company, BPL Ltd., subject to the condition that the target company and the acquirer shall ensure -
i) that in respect of the proposed preferential allotment the relevant norms including the norms regarding the pricing specified in Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 shall be observed and complied with;
ii) that there shall be no reduction in the minimum level of public shareholding pursuant to the proposed preferential allotment and that the target company shall maintain the minimum level of public shareholding, as required in terms of the listing agreement.
iii) the acquirer and the target company shall comply with the undertaking given vide letters dated July 30, 2007.
6.2 The acquirer shall complete the proposed transaction within 30 days from the date of the order and file a report with Securities and Exchange Board of India in the manner specified in Regulation 3(4) read with 3(5) of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 confirming compliance including conditions specified in this order.
G. ANANTHARAMAN
WHOLE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA
Place: Mumbai
Date: September 24, 2007