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The Securities and Exchange Board of India (Sebi) has exempted the government of India from coming out with an open offer to the shareholders of Central Bank of India despite acquiring more than 5% in voting rights.
"I am of the considered view that this is a fit case to grant exemption under regulation 11 of the Takeover Regulations to the GoI from the obligation to make an open offer under regulation 3(2) of the Takeover Regulations," said the Sebi order passed on Monday.
The central government is infusing capital to the tune of Rs.2406 crores in bank in return for 30.84 crore preferential shares in the exchange at a price of Rs.78/- per equity share
Since the increase is in excess of 5% of voting rights, the acquirer would typically have to come out with an open offer to acquire shares from the public.
The Sebi order suggested that the exemption is justified since the issue of preference shares was necessary to meet the 8% Tier 1 Capital Adequacy requirements under the BASEL II guidelines.
Higher capital is in order to keep it out of financial difficulty and protect the interest of its depositors and in turn the economy.
It also noted that the bank has also undertaken that the capital raised through the preferential allotment to GoI would not be used by it for making investment in its subsidiaries or joint ventures. It would also keep government shareholding in line with the minimum 90% public shareholding limit for government companies.
This is not the first time that the market regulator has had to exempt the government from open offer obligation.
It had granted a similar exemption to IFCI in September 2012. The conversion of debentures worth Rs 923 crore had led to the government’s stake going up from 0.0000011% to 55.57%, resulting in acquiring control of IFCI.
Another order was passed in the case of IDBI Bank in March, 2012. The conversion of Tier-I bonds increased the government’s shareholding from 65.13% to 70.73%, breaching the creeping acquisition limit of 5%.
Also, Sebi passed an order in the case of Hindustan Copper in October, 2004. Issuances of equity shares worth Rs 365 crore to the government had led to an increase in government’s shareholding from 98.95% to 99.48%.
