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SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
WTMO/02/CFD/06/2005 1.0 BACKGROUND 1.1 Satia Paper Mills Ltd. (hereinafter referred to as ‘the target company’) is a public limited company incorporated under the Companies Act, 1956, having its registered office at Malout-Muktsar Road, Village Rupana, Distt- Muktsar, Punjab. 1.2 The equity shares of the target company are listed on the Ludhiana Stock Exchange and Delhi Stock Exchange. 2.0 APPLICATION FOR EXEMPTION 2.1 Dr. Ajay Satia who is a promoter of the target company along with persons acting in concert with him (hereinafter referred to as ‘acquirer’) made an application through the target company vide its letter dated 4.8.04 under Regulation 4(2) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 (hereinafter referred to as ‘the Takeover Regulations’), seeking exemption from the compliance of Regulations 10, 11 and 12 of Chapter III of Takeover Regulations with respect to the proposed acquisition of 22,50,000 equity shares of the target company by the acquirer through preferential allotment. 3.0 SUBMISSIONS IN THE EXEMPTION APPLICATION 3.1 The acquirer is a promoter of the target company and along with his associates, friends and relatives holds 35.18% shares in the target company. In terms of the proposal as per the Corporate Debt Restructuring Scheme of the Reserve Bank of India, a preferential allotment of 8,83,200 shares to the promoter and 13,66,800 shares to persons acting in concert with the promoter is proposed. Presently, the promoter is holding 2.26% equity shares in the target company and pursuant to the proposed preferential allotment of 8,83,200 equity shares, his shareholding will increase to 12.35%. The proposed allotment of 22,50,000 shares to the acquirer would lead to increase in shareholding of promoter and persons acting in concert with him, from 35.18% to 52.85%. 3.2 The target company is engaged in the manufacture of writing and printing papers and the Government of India in accordance with the direction of the Hon’ble Supreme Court has put an obligation on the paper industry to follow time frame action for meeting the pollution control norms and as per the required norms the target company is to install the Chemicals Recovery and Power Generation Plant so that it could be able to meet the pollution control norms. 3.3 The target company has approached the Financial Institutions for debt financing of the proposed project of installing the Chemicals Recovery and Power Generation Plant because of unfavorable market conditions for public issue. The paper industry is also passing through a recessionary market condition and the unsatisfactory financial performance of the target company during the last few years is also a reason for choosing debt financing of the proposed project. 3.4 The Corporate Debt Restructuring Cell while granting approval for the restructuring of the existing debts vide letter dated July 9, 2003 has imposed a condition that the promoters shall bring Rupees 225 Lakhs by way of equity induction and also arrange for the shortfall of funds required for the proposed Chemicals Recovery and Power Generation Plant estimated at Rupees 75 Lakhs by the management, which would be raised later against issue of shares worth Rupees 75 Lakhs. 4.0 RECOMMENDATION OF THE TAKEOVER PANEL The aforesaid application dated 4.8.04 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 18.8.04, has recommended as under – “As per the statements made in the application, it appears that the proposal envisaging restructuring of debts of the target company under the CDR mechanism has been approved and the promoters/associates of the target company are required to bring Rupees 225 Lakhs by way of equity induction. The present shareholding of promoters/associates of the target company which is at 35.18% would, after the proposed issue, increase to 52.85% in the share capital of the target company. In the facts and circumstances stated in the application, grant of exemption as sought for issuance of 22,50,000 equity shares on preferential basis to the promoters/associates of the target company at the price to be determined as per provisions of Regulation 20 of the Takeover Code or at Rs.10/- per share, whichever is higher, is recommended.” 5.0 FURTHER SUBMISSIONS OF THE ACQUIRER 5.1 SEBI vide letter dated September 8, 2004 sought clarification from the acquirer regarding inter alia number of shares proposed to be acquired. 5.2 The acquirer through its target company vide letter dated 31.12.04 submitted that the acquirer wish to acquire 30 Lakhs shares. They also submitted a list of additional allottees for the allotment of 7,50,000 shares. Thus in all there are 31 entities who are proposed to be allotted shares against the fund of Rs.300 Lakhs to be brought in by the promoters as per the CDR condition. As a result of the revised proposed acquisition, the shareholding of the acquirer would increase from 35.18% to 56.78%. 5.3 The target company vide its letter dated 1.12.04 and the acquirer vide letter dated 31.12.04, have undertaken to comply with the following conditions: i) A general meeting of shareholders shall be called for passing a fresh special resolution under Section 81(1A) of the Companies Act, 1956 for the said preferential allotment to prospective acquirer. ii) In the explanatory statement to the notice under Section 173 of the Companies Act, 1956 the following disclosures shall be made:- · The price at which the allotment is proposed. · The identity of such person(s). · The purpose of and reason for such allotment. · 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. iii) The guidelines for preferential allotment (including pricing) as prescribed under Chapter XIII of SEBI (Disclosure and Investor Protection) Guidelines, 2000 shall be complied with. 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 shall be provided. The notice to shareholders shall include postage pre-paid envelope for facilitating the consent or dissent. v) The prospective acquirer (the promoter group) being interested party to the resolution shall abstain from voting in respect of the resolution. 5.4 Subsequently, the target company, on behalf of the acquirer vide letter dated March 15, 2005 submitted that the holding of the promoters and associates will not exceed 55% after the proposed preferential allotment as the number of shares to be allotted is reduced to 20,00,000 equity shares of the target company. 5.5 As per the application read with the letter dated March 15, 2005, the current shareholding pattern of the target company along with the shareholding subsequent to the acquisition would be as under:
Thus after the proposed allotment of 20,00,000 shares in the target company through preferential allotment the shareholding of the promoters would increase from 35.18% to 51.38%. 6.0 FINDINGS 6.1 I have carefully gone through the application dated 4.8.04 and have taken into consideration the relevant material available on record, the above mentioned recommendation of the Takeover Panel and further submissions of the acquirer. 6.2 I find that the acquirer has undertaken to acquire only 20,00,000 shares in the target company through preferential allotment. Consequently the shareholding of the acquirer would increase from 35.18% to 51.38%. Therefore unless exempted under Regulation 3 the proposed acquisition would attract the provisions of Regulation 11(1). 6.3 I have considered that the target company has to follow the pollution control norms and as per the required norms the target company is to install the Chemicals Recovery and Power Generation Plant. I have also considered that the target company has approached the Financial Institutions for debt financing of the proposed project of the Chemicals Recovery and Power Generation Plant because of unfavorable market conditions for public issue due to recessionary market conditions of the paper industry and also because of the unsatisfactory financial performance of the target company. 6.4 Further the Corporate Debt Restructuring Cell while granting approval for the restructuring of the existing debts vide letter dated July 9, 2003 has imposed a condition that the promoters shall bring Rupees 225 Lakhs by way of equity induction and also arrange for the shortfall of funds required for Chemicals Recovery and Power Generation Plant. 6.5 I observe that the proposed acquisition is not for the purpose of acquiring control and management over the target company. 6.6 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. 7.0 ORDER 7.1 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 Regulation 4(6) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, hereby grant exemption to the acquirer, namely Dr. Ajay Satia and persons acting in concert with him, from complying with Regulation 11 of Chapter III of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 in the case of the proposed acquisition of 20,00,000 equity shares by preferential allotment subject to the conditions as undertaken to be complied with by the acquirer under para 5.3 of this order. 7.2 The acquirer shall complete the transaction within 90 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. Date: June 27, 2005 Place: Mumbai MADHUKAR WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA |
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