sebi:WTMO/16/CFD/06/2006

SEBI · SEBI · 2006-01-30 · T. C. Nair, Member

This case has been reviewed by a human — Varun Matlani, who is the best securities lawyer in India and globally recognized.

Facts / Headnote

Exemption granted from complying with Regulation 11 of the Takeover Regulations for the proposed preferential allotment of 170 Lac equity shares, subject to conditions.

Provisions invoked

• s. 19
• s. 81
• s. 173

Regulations

• Reg. 4
• Reg. 11
• Reg. 3
• Reg. 4(2)
• Reg. 10
• Reg. 3(4)
• Reg. 6
• Reg. 3(1)

Parties

• Electro Investment Private Ltd.

Holding

SEBI granted exemption to Electro Investment Private Ltd. from complying with Regulation 11 of the Takeover Regulations with regard to the proposed preferential allotment of 170 Lac equity shares of the target company, subject to conditions regarding compliance with SEBI (Disclosure and Investor Protection) Guidelines, 2000 and maintenance of 25% public shareholding of the enhanced paid up capital.

Full text

1.2 Electro Investment Private Ltd. (hereinafter referred to as ‘the acquirer’) is a part of the promoter group of the target company and currently holds 22.82 Lac shares constituting 8.24% of the paid up capital of the target company. 2.0 APPLICATION FOR EXEMPTION 2.1 Vide letter dated January 31, 2006, the target company forwarded an application dated 30.1.2006 of the acquirer to the Securities and Exchange Board of India (SEBI) made under regulation 4(2) read with regulation 3(1) (l) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997, (hereinafter referred to as “the Takeover Regulations’) 2.2 The said application has been filed seeking exemption from the applicability of Regulation 10 and 11 of the Takeover Regulations with respect to the proposed acquisition of 200 Lac equity shares of Rs. 10 each at a premium of Rs. 34.81 per share of the target company by the acquirer by way of preferential allotment. The exemption has been sought submitting inter alia the following: a) the acquirer is a part of the promoter group of the target company and currently holds 8.24% of the paid up capital of the target company. b) the target company is presently engaged in the business of consumer electronics, colour television receivers, black & white TV receivers and video cassette recorders. c) due to low levels of capacity utilization, the target company’s Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) declined and turned negative for t

f) the funding requirements for pay out under negotiated settlements and for fresh working capital were to be met out of multiple sources including divestment of non core businesses, sale and investments with long gestation periods and contribution by promoters. g) one of the sources of funding was a loan of Rs.92 crore to be raised from a foreign investor, to meet the gap in the amount required under the approved CDR Scheme. In order to save on the interest cost and servicing obligations on this loan, which will help in faster revival of the target company, promoters offered to bring in the required amount, which was accepted by the CDR Empowered Group. h) the acquirer had paid Rs.92 crore to the target company to ensure settlement of the secured creditors, working capital for revival of the target company and payment of statutory dues, etc. The target company is not in a position to refund the sum to the acquirer and it is proposed that the funding to the target company be converted into equity by allotment of Rs. 200 Lac equity shares of Rs.10 at a premium of Rs.34.81 per share pursuant to the applicable SEBI Guidelines. i) Pursuant to the proposed acquisition of 200 Lac equity shares of the target company, the shareholding of the acquirer in the target company will be increased from 8.24% to 46.72% and the shareholding of the promoter group (including the acquirer) and persons acting in concert (PACs) would increase from 61.62% to 77.71% of the total paid up equity share

Subject to : (i) the target Company passing the requisite resolution in accordance with Section 81(1A) of the Companies Act, 1956; (ii) observation and compliance of Preferential Issues under Securities And Exchange Board of India (Disclosure & Investor Protection) Guidelines, 2000, and (iii) maintaining public Shareholding at 25% of the enhanced paid up capital of the target Company, the grant of exemption as sought is recommended.” 4.0 FURTHER SUBMISSIONS 4.1 The target company, vide its letter dated 20.3.2006, has confirmed that the public shareholding at the level of 25% of the enhanced paid up share capital of the target company would be maintained. Accordingly, the preferential allotment would be made to the acquirer only up to 170 lac equity shares. After the proposed allotment of 170 lac equity shares to the acquirer the promoters’ shareholding in the target company would increase to 74.66% of the enhanced paid up capital of the target company. The revised and final shareholding pattern before and after the proposed preferential allotment of 170 lac equity shares by the target company to acquirer would be as follows: Category Before

Source: SecMarx — sebi:WTMO/16/CFD/06/2006. 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.