The Securities and Exchange Board of India has decided to curtail the availability of the creeping acquisition route to promoters who hold more than 55 per cent in a company.
Such promoters will have to make the mandatory open offer if they wish to raise their holdings over 55 per cent. Earlier, the cut-off was 75 per cent.
The creeping acquisition route permits promoters to buy an additional 2 per cent stake each year from the open market, without triggering Sebi's takeover code.
The amended regulations do not allow promoters to hike their stake beyond the 55 per cent mark even through the preferential allotment route.
The new mark had been set, Sebi officials explained, keeping in mind that each company must have a minimum 25 per cent non-promoter holding. A mandatory 20 per cent open offer, post the 55 per cent mark, will take the promoter's stake to 75 per cent.
Though a notification has not yet been issued to this effect, one would be issued this week, said a Sebi official.
Sebi's decision follows recommendations made in December. Currently, delisting is mandatory only if the non-promoter holding falls below 10 per cent.
The new regulations also pave the way for a minimum 25 per cent non-promoter holdings at all times. This means if the promoters' shareholding in the company goes above 75 per cent, they will have to compulsorily delist through the reverse book-building route.
If the promoters choose not to delist, they will have to bring their stake below 75 per cent.
Merchant bankers said the amended regulations would make acquisitions extremely unattractive in the corporate sector, especially for multinationals.
According to an investment bank source, "MNCs are comfortable with a 76 per cent holding, which they could have reached through the creeping acquisition route."
It will also prove to be troublesome for existing promoters who have a stake of more than 55 per cent because they may have to make an open offer if they wish to retain their holding at this level.
But the regulations make a concession in that such promoters may make an open offer for a lower percentage of shares as it will take their stake to 75 per cent.
In case the promoters do not want to increase their stake, they will have to bring their stake below 55 per cent through a sale offer.