sebi:WTM/RKA/CFD/20/2012

SEBI · SEBI · 2006-08-17 · Rajeev Kumar Agarwal, Whole Time Member

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Facts / Headnote

Exemption granted from obligation to make open offer under regulation 3 of Takeover Regulations, 2011, subject to conditions; application dated October 18, 2011 disposed of.

Provisions invoked

• s. 19
• s. 81
• s. 3(1)
• s. 15(1)
• s. 192A
• s. 17(3)

Regulations

• Reg. 11
• Reg. 3
• Reg. 11(1)
• Reg. 201
• Reg. 10(7)
• Reg. 11(5)

Holding

SEBI granted exemption to the applicants (promoters) from the obligation to make an open offer under regulation 3 of the Takeover Regulations, 2011 in respect of the proposed acquisition of 2,00,00,000 equity shares of Gem Spinners India Limited pursuant to conversion of unsecured loan of Rs. 10 crore at Rs. 5/- per equity share, subject to conditions.

Full text

Page 2 of 9 a. The target company was incorporated in the year 1990. Target company has issued 4,13,71,990 equity shares in total of Rs. 5/- each and its paid up equity share capital is Rs. 20, 68, 59,950. The applicants are promoters of the target company. b. The target company is engaged in manufacturing of cotton yarn. The target company had setup a spinning unit with 25,000 Spindles during 1994 with a project cost of Rs. 68 crore funded by IDBI Bank and ICICI Bank in foreign currency loan in Deutsche Mark. c. In the year 1999, due to 100% erosion of capital the target company was referred to Board for Industrial and Financial Reconstruction (hereinafter referred to as 'BIFR'). Scheme of rehabilitation was arrived at during 2002.As per the Scheme; the applicants (promoters) have brought in around Rs. 6 crore in the target company. d. As the performance of the target company had improved during the years 2005 and 2006 and its networth had become positive, the target company opted out of BIFR on August 17, 2006. e. However, as a measure to strengthen the target company's eroding networth the promoters had brought in funds in the form of loan. The applicants (promoters) have brought in Rs. 36.75 crore towards their equity and unsecured loan for the business of the target company. f. Since the target company’s networth as on March 31, 2009 had again become negative (Rs. 6.58 lakhs) due to the factors beyond its control, it again filed a reference with BIFR under section 15(1)

Page 3 of 9 secured creditor. On May 31, 2010, BIFR directed the target company to submit a DRS and its audited balance sheet as on March 31, 2010 to BIFR and the IOB. IOB was directed to conduct joint meeting of concerned agencies from whom the target company had sought relief/ concessions and submit fully tied–up DRS. i. By March 28, 2011 the target company had settled all the dues aggregating to Rs. 232.56 lakhs of the secured creditors namely, ICICI Bank and IDBI Bank under the OTS scheme out of the unsecured loan brought in by the applicants between March 2010 and March 2011. j. While granting credit facilities to fund the working capital of the target company, the IOB, the target company’s banker, insisted the promoters (applicants) to convert their unsecured loans into equity shares to make the networth of the target company positive so that it can come out of the BIFR. If the applicants do not do so, the target company would remain sick and would be within the reference of BIFR. k. Accordingly, the target company has proposed to make preferential allotment of 2,00,00,000 equity shares (32.59% of the expanded capital) of Rs. 5/- each to the applicants pursuant to the conversion of a portion of (Rs. 10 crore) their unsecured loan. l. Based on the target company's application it has been deregistered from BIFR on November 30, 2011. m. The proposed infusion of funds in the target company by the applicants is to ensure that there is no financial charge on the target compan

Page 4 of 9 3. The shareholding pattern of the target company, prior to the proposed acquisition and thereafter would be as following- Shareholders category Shareholding prior to the pref. allotment Shareholding post pref. allotment

Source: SecMarx — sebi:WTM/RKA/CFD/20/2012. 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.