sebi:WTM/KMA/CFD/317/11/2010
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Facts / Headnote
Rejected - exemption not granted; application dated July 6, 2010 disposed of as rejected
Provisions invoked
- s. 19
Regulations
- Reg. 11
- Reg. 4(4)
- Reg. 11(1)
- Reg. 4(6)
Holding
SEBI rejected the application dated July 6, 2010 by Dcom Systems Limited for exemption from Regulation 11(1) and (2) in respect of its proposed acquisition of 24,90,000 equity shares of Jaihind Projects Limited pursuant to conversion of 24,90,000 warrants.
Full text
Page 2 of 7 exemption is sought from the applicability of Regulation 11 of the Takeover Regulations, inter alia, on the following grounds: i. The proposed subscription by the acquirer is with the overall objective of infusing funds into the target company for meeting its critical and urgent financial need for financing the new overseas projects. As per the requirement of Financial Institution/banks, the target company has to maintain debt equity ratio at a desirable level. To meet the criteria, the target company has to bring the funds by way of share capital/owner’s equity. ii. With a view to fulfill the debt equity ratio and to meet the working capital requirements without any obstacle, the target company has sought the approval of the shareholders and stock exchange for issuance of 24,90,000 convertible warrants to the acquirer. iii. The initial subscription of 25% of convertible warrants was utilized for regularizing one of its current accounts maintained with the State Bank of India. The additional funds through preferential allotment of shares would be beneficial to the shareholders of the target company as the additional capital including the premium amount would enhance the netwoth of the target company, improving its debt equity ratio and giving room for additional financial facility from its bankers. The enhancement of networth is very essential for making bids for tenders wherein the financial criteria clearly state the required networth and working capital to bid
Page 3 of 7 v. Banks have also placed a requirement that the working capital gap arising in the course of the functioning shall be availed by the infusion of funds from equity. vi. The infusion in target company through subscription would, on one hand enhance the net worth of the target company and on the other hand, give ample scope for availing financial facilities from its bankers. The target company is making bids for government tenders and the pre-requisite for big tenders is the net worth of the company. Thus, the additional equity would put the target company in a comfortable position.
Page 4 of 7 information, vide letter dated September 8, 2010. Subsequently, the Takeover Panel, vide report dated September 21, 2010 inter alia, observed the following: “.Justification for seeking exemption is based on the Company’s need for funds to finance its new overseas projects and other projects outside State of Gujarat. Further, the Target Company is making bids for government tenders and the pre-requisites for big tenders is the net worth of a Company. According to the Target Company the additional equity would put the Target Company in comfortable position for raising finance from banks. The panel did not find any of the aforesaid as well as other
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Source: SecMarx — sebi:WTM/KMA/CFD/317/11/2010. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.