The move by Essar group investment companies to acquire Sterling Computers appears to have run into fresh trouble. The new promoters of Sterling Computers have decided to seek delisting from stock exchanges, arguing that public shareholding in the company after the acquisition has fallen below the minimum 20 per cent required under the listing provisions.
The Bombay Stock Exchange has called for the matter to be examined in its entirety by the Securities & Exchange Board of India, in view of the ambiguities surrounding delisting provisions. The Sebi intervention has become necessary as the listing agreement is silent on the action that can be taken by an exchange if the public shareholding in a company goes below 20 per cent.
The Essar group investment companies had initially acquired 80 per cent equity in Sterling Computers in November 1996. Subsequently, the Essar group had made an open offer (under the take-over code prevailing at the time) for acquiring the remaining 20 per cent. The open offer was made upon verbal instructions from Sebi, according to the company. The open offer, which closed on March 12, 1997, received response from 7 per cent of the shareholders of Sterling Computers. This led to the Essar investment companies acquiring a total stake of 87 per cent in the company.
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What complicated the matter further was the new take-over code of Sebi, which stipulates that if the public shareholding in a company goes below 10 per cent, the acquirer will have to either give a second offer within three months of the date of closure of the public offer (which may result in delisting of the company) or the acquirer has to disinvest through an offer for sale or through a fresh issue of capital to the public.
The Essar group investment companies, however, chose neither option and decided to get Sterling Computers delisted from the exchanges. The company had written to the exchange seeking delisting on June 6, 1997.
The issue was discussed by BSE at its governing board meeting on Monday. According to the decision taken at the end of the meeting, BSE president M G Damani will write to Sebi next week, seeking examination of the issue in its entirety, including the delisting provisions.
According to a BSE note, the acquirers had followed Sebi (Substantial Acquisition of Shares and Take-over) Regulations, 1994. These were statutory regulations. Further, the exchange does not have the power to delist a company on the grounds indicated by the acquirer in the situation they are in, the note said. Damani said: It will be in the fitness of things that Sebi examines this first-of-its-kind case, opting for delisting of its securities after a change in management of the company.