Sebi tightens open offer exemption rules

The Sebi board met today and took decisions on some key changes to the takeover regulations. The notifications about the changes will be made in due course.

1. Takeover Regulations
At present, there is some ambiguity on whether the takeover regulations are applicable to Global Depositary Receipts/American Depositary Receipts (GDR/ADR). The cross-border deal between India’s Bharti Airtel and South Africa’s MTN is expected to involve MTN picking up a stake in Bharti through the ADR/GDR route. Since these are not treated as shares, but depositary receipts that entitle the holder to the underlying shares, there is a perception that the takeover regulations may not apply. In fact, Bharti Airtel had got an informal guidance from Sebi which stated that acquisition of ADR/GDR will not trigger the open offer regulations.

Sebi has now made it clear that ADR/GDRs which have voting rights embedded will come under the purview of the takeover regulations. This means that anybody who acquires GDR/ADR shares and that results in their stake hitting the 15% trigger, they will have to make an open offer. Typically, the depositary receipt holders have the right to ask the custodian bank to vote on their behalf. Effectively, that gives them voting rights. Sebi is saying that unless these rights cease to exist, ADR/GDRs and equity shares will be treated on par for the Takeover Code.

2. At present, when the promoters or anybody else in control, have a stake of between 15-55%, they are required to disclose to the stock exchanges any changes in shareholding of more than 2%. Sebi has now extended this rule to cover all those having a stake between 15-75%.

3. At present, promoters can acquire 5% every year through the creeping acquisition limit, if their stake is below 55%. Sebi has now clarified that if their stake is just below 55%, they can only take it up to the 55% limit and not beyond. But companies have a relaxation that they can buy from the open market or through a buyback and take the stake up to 75%. This will continue.

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