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SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
IN THE MATTER OF PROPOSED ACQUISITION OF SHARES OF SOUTHERN PETROCHEMICALS INDUSTRIES CORPORATION LTD. {EXEMPTION APPLICATION FILED UNDER REGULATION 4 (2) OF THE SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997}
WTMO/M/CFD/134/05
1.0 Southern Petrochemicals Industries Corporation Ltd. (hereinafter referred to as ‘the target company’) is a public limited company incorporated under the Companies Act, 1956 and having its registered office at 73 Armenia Street, Chennai 600 001. The equity shares of the target company are listed on the National Stock Exchange of India Ltd. 2.0 APPLICATION FOR EXEMPTION 2.1 The target company vide letter dated November 12, 2004 filed an application under regulation 4 of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 (hereinafter referred to as the ‘Takeover Regulations’) on behalf of FICON Holdings Ltd. and ACM Educational Foundation (hereinafter referred to as ‘the acquirers’) seeking exemption from complying with the provisions of regulation 10, 11(1) and 12 of Chapter III of the Takeover Regulations, in respect of the proposed acquisition of 2,00,00,000/- shares of the target company on Preferential basis at Rs. 10/- per share. ACM Educational Foundation is a part of the promoter group of the target company and is holding 1,20,000 equity shares i.e. 0.13% of the paid up equity share capital of the target company. FICON Holdings Ltd. is not holding any shares in the target company as on the date of the application. The shareholding of the promoter group after the proposed acquisition would increase from 30.05% to 43% of the paid up capital of the target company. 3.0 SUBMISSIONS IN THE EXEMPTION APPLICATION 3.1 In the application dated November 12, 2004, the target company have inter alia submitted that: i) the target company is engaged in the business of manufacturing, refining, preparing and marketing of all kinds of fertilizers and other agri-inputs likes pesticides etc. It is also engaged in businesses like pharmaceuticals, biotechnology, engineering services etc. ii) in view of the retrospective changes in the fertilizer pricing policy by the Government of India and also due to the nil/low yield on some of its investments, the target company was in default with its lenders in respect of its loan obligations. The target company ended the financial year 2002-03 with a loss of Rs. 375.69 crores. Infusion of share capital of Rs. 20 crores by the promoters at the critical stage of the target company is demonstrative of their commitment to the revival of the target company. iii) towards restructuring of its loan-term debt, the target company had availed the Corporate Debt Restructuring (CDR) mechanism, instituted by the Reserve Bank of India (RBI) for restoring its financial health. iv) under the CDR, in consultation with financial institutions led by Industrial Development Bank of India (IDBI) and Banks led by Indian Bank, entire secured debt portfolio of the target company has been restructured and the salient features of the CDR package sanctioned are: · restructuring of the loans with varying interest rates (4%-11% p.a.) and repayment tenors (5-12 years) including moratorium of 2-3 years and interest funding for two years beginning from the cut-off date of 1st April 2002. · cash credit facility from the working capital consortium to carry an interest rate of 6% for the two years – 2002-03 and 2003-04 and 11% p.a. thereafter. · one of the special terms and conditions subject to which the CDR package has been sanctioned is that the promoters of the company should bring in additional equity contribution of Rs. 20 crores at par, as part of the restructuring package. v) In accordance with the above requirement, the promoters have brought in the stipulated subscription of Rs. 20 crores, by way of additional contribution to the equity share capital of the Company, at par, through the acquirers vi) The proposed acquisition is by way of allotment of 2,00,00,000 equity shares of Rs. 10/- each on preferential basis to the acquirers. vii) The proposed allotment of shares to the subscribers to the preferential issue under Section 81(1A) of the Companies Act, 1956 is wholly for the benefit of, and in the best interests of, the target company. It would not in any manner affect or prejudice the interests of the public shareholders or other stakeholders of the target company. viii) the proposed issue/allotment on preferential basis to the acquirers, would be made in compliance with Chapter XIII of the SEBI (Disclosure & Investor Protection) Guidelines, 2000. ix) that the proposed preferential allotment would not result in reducing the non-promoter holding below the limit of public shareholding specified under the aforesaid Guidelines. x) in accordance with the CDR stipulation, it is proposed to allot the equity shares, at par, viz., at Rs. 10/- per share. While the six months weekly closing price average as calculated under Chapter XIII of the SEBI (Disclosure & Investor Protection) Guidelines, 2000 works out to Rs. 9.10 per share, the two weeks’ weekly closing price average, as per the methodology prescribed there under, works out to Rs. 10.05 per share, which is supported by the Certificate dated 28.9.2004 of M/s. Fraser & Ross, Chartered Accountants and the Statutory Auditors of the Company. xi) The target company is authorised by the proposed acquirers to make the present application on behalf of the acquirers. 3.2 As per the said application, the current shareholding pattern of the target company, is as under:
3.3 Thus the shareholding of the promoter group which includes the acquirers would increase from 30.05% to 43% after the proposed preferential allotment. In view of the above the acquirers, had sought the exemption from the provisions of regulation 11 (1) of the Takeover Regulations in respect of the proposed acquisition. 4.0 RECOMMENDATION OF THE TAKEOVER PANEL 4.1 The aforesaid application dated November 12, 2004 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 December 02, 2004 has recommended as under –
“The proposed acquisition of equity shares being pursuant to the requirement of Corporate Debt Restructuring Cell in sanctioning the Corporate Debt Restructuring Programme of the target company and there being no likelihood of any change in the management and control of the target company, the grant of exemption as sought is recommended subject, however, to calculation of acquisition price is accordance with SEBI (Disclosure and Investor Protection) Guidelines, 2000 relating to preferential issues.”
5.0 Further submissions
5.1 The target company vide its letter dated February 03, 2005 inter alia further submitted that- a). the members of the company had, at the Annual General Meeting held on 29th September 2004, passed the special resolution in respect of the proposed preferential allotment unanimously. The promoter group shareholders being the interested party had abstained from voting in respect of this resolution. b). While forwarding the notice of the said AGM to the shareholders the target company had furnished in the explanatory statement all material information as required under Chapter XIII of the SEBI (Disclosure and Investor Protection) Guidelines, 2000 including the price at which the allotment is proposed, the identity of person to whom the allotment is proposed, consequential change in directors/voting rights/shareholding pattern and whether such allotment would result in change in control of the target company. c) The allotment is proposed at rs. 10/- per share as per the requirement of the CDR package. As calculated under Chapter XIII SEBI (Disclosure & Investor Protection) Guidelines, 2000, the price works out to be Rs. 10.05 per share. The price of Rs. 10 as stipulted under the CDR package is close to the price calculated under the said Guidelines. d) For the financial year 2003-04 the target company has reported potential sickness to the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 owing to continuous operational losses. 5.2 In view of the above, the target company has also requested not to insist to pass the resolution afresh through a postal ballot. 6.0 FINDINGS
6.1 I have taken into consideration the application dated November 12, 2004, the above mentioned recommendation of the Takeover Panel, further submissions of the target company and the relevant material available on record. I note that the proposed acquisition is for the purpose of improving the financial condition of the target company. I have further noted from the application filed by the target company that it had suffered loss due to the changes in the pricing policy for fertilisers of Government of India and there by affected its performance which led to the default of its loan obligations towards the lenders. I have further noted that the target company had suffered net loss of Rs. 9.75 crores during the financial year 2003-04. I have also noted the intention of the acquirers to contribute Rs. 20, 00,00,000/- for the revival of the target company. 6.2 I observe that the proposed acquisition is being made pursuant to the target company availing the Corporate Debt Restructuring Mechanism instituted by the Reserve Bank of India for restoring the financial condition of the target company. 6.3 It is also requested by the target company to exempt the calculation of price as mentioned under the provisions of SEBI (Disclosure & Investor Protection) Guidelines, 2000. From the Chartered Account certificate submitted by the target company it is observed that the price for the allotment is stated to be not less than 10.05 per share. The request of the target company cannot be acceded to and the target company has to comply with the provisions of SEBI (Disclosure & Investor Protection) Guidelines, 2000 relating to pricing. However, as the special resolution has been passed by the shareholders of the target company it its AGM held on 29.09.2004, wherein the promoter group shareholders being interested parties abstained from voting on the resolution and that the all required disclosures were made in the explanatory statement to the notice of the AGM, the passing special resolution through postal ballot may not be insisted in this case. 6.4 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.
7.0 ORDER
7.1 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 FICON Holdings Ltd. and ACM Educational Foundation from complying with the provisions of Regulation 11(1) of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 with regard to the proposed acquisition of 2,00,00,000 (representing 18.5% of the post issue paid up equity share capital of the target company) equity shares by way of preferential allotment subject to the condition that the calculation of price in respect of the proposed preferential allotment shall be in accordance with the provisions of SEBI (Disclosure and Investor Protection) Guidelines, 2000 relating to preferential issue.
7.2 The acquirers shall complete the transaction within 30 days from the date of the order and file a report in the manner specified in regulation 3(4) read with 3(5) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 with SEBI, confirming compliance.
MADHUKAR WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA
Place: Mumbai Dated: March 10, 2005 |
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