sebi:WTM/RKA/CFD/DCR-I/38/2012

SEBI · SEBI · 2012-08-23 · Rajeev Kumar Agarwal, Whole Time Member

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Facts / Headnote

Exemption granted from open offer obligations under regulations 3(1), 3(2) and 4 of the Takeover Regulations, subject to conditions

Provisions invoked

• s. 19
• s. 81(3)

Regulations

• Reg. 11
• Reg. 3
• Reg. 11(1)
• Reg. 3(1)
• Reg. 70
• Reg. 11(5)

Holding

SEBI granted exemption to the Government of India from the obligation to make an open offer under regulations 3(1), 3(2) and 4 of the Takeover Regulations in respect of its proposed acquisition of 92,30,00,000 equity shares of IFCI Ltd. pursuant to conversion of Rs.400 crore UCDs and Rs.523 crore OCDs, which would increase GoI's shareholding from 0.0000011% to 55.57%.

Full text

Page 2 of 7 a) IFCI was converted into a company incorporated under the Companies Act and was decided that the new company would be incorporated as a Government Company. In 1994, a decision was taken that the shareholding of Government controlled institutions in IFCI Ltd. should be maintained above 51%. b) In the wake of likely systemic impact of the Target Company defaulting on its liabilities, the GoI in the year 2001, as part of its recapitalization plan infused Rs.400 crore as Tier -I capital in the form of 20 year 9.75% Unsecured Convertible Debentures (UCDs) and is redeemable on October 30, 2021. The terms of the said instrument provide GoI the option of converting the debentures, wholly or partly into fully paid equity shares of the Target Company, at par, at any time during the currency of debentures subject to compliance with the provisions of SEBI guidelines in respect of preferential allotment. c) The Target Company has the right to redeem the aforesaid UCDs, fully or partly, at par, at any time after expiry of five years from the date of the issue with prior approval of the Reserve Bank of India (RBI). d) Thereafter, in December 2002, the GoI approved a financial assistance of Rs.5220 crores to the Target Company, which was to be released over the period from 2003 to 2011-2012. Out of the said package, financial assistance of Rs.2932.31 crores - Rs.523 crores as loan in the form of Optionally Convertible Debentures (OCDs) and Rs.2409.31 crores as grants-in-aid, wa

Page 3 of 7 f) The GoI has decided to convert the aforesaid convertible debentures into equity and since the modalities around conversion may entail different time periods, the conversion may happen in two tranches : i. Stage I - Conversion of Rs.400 crore UCDs into 40,00,00,000 shares of face value Rs.10/- ; ii. Stage II - Conversion of Rs.523 crore OCDs into 52,30,00,000 shares of face value Rs.10/-. g) After conversion of Rs.400 crore UCDs, the shareholding of GoI would increase from 0.0000011% to 35.15% and after the conversion of Rs.523 crore OCDs, the shareholding of GoI would further increase to 55.57%. These acquisitions would trigger the obligation for the GoI to make open offer under regulations 3(1), 3(2) and 4 of the Takeover Regulations and hence exemption is sought under regulation 11(1) of the said regulations.

Page 4 of 7 conversion of debentures of Rs. 400 crore and Rs 523 crore respectively into equity at par. If so, this would require approval of shareholders for reclassifying / increasing the authorized capital of IFCI Ltd. Further, it was observed by the Panel that though GoI desires to convert the debentures of Rs 523 crore into equity at par, the terms of OCDs approved by the IFCI’s Board are silent on pricing on resultant equity shares. However, if such a conversion option is exercised u/s 81(3) of the Companies Act, 1956 then the SEBI pricing formula applicable to preferential allotment will not be attracted in view of the provisions contained in regulation 70 of SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2009 which provide exemption to such acquisition of shares on conversion of loans / debentures by Govt. and PFIs.

Source: SecMarx — sebi:WTM/RKA/CFD/DCR-I/38/2012. 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.