Sebi to clarify creeping acquisition norms

The Securities and Exchange Board of India (Sebi) is expected to clarify a notification relaxing the creeping acquisition norms that allowed promoters to raise their stake by 5 per cent per annum without having to seek regulatory approval.

The notification also allowed them to raise their holding to 75 per cent instead of 55 per cent earlier. In a press release on October 28, Sebi had stated that promoters would not require permission if their holdings in the firm were to increase 5 per cent per annum in the event of a buyback of shares.

Earlier, they had to seek the approval of the Sebi takeover panel. "It has now been decided to automatically exempt increase/consolidation up to 5 per cent per annum as a result of buyback by a company," the press statement said.

However, the notification, which came on October 30 did not have the words "per annum", leaving the definition of the exemption ambiguous.

Experts said Sebi did not clarify whether the 5 per cent acquisition limit was applicable to each financial year, or was only a one-time affair. This means that anyone holding more than 55 per cent shares can go on acquiring shares of the target company by open market purchases in less than 5 per cent tranches many times a year.

However, the Sebi intention, as is clearly evident from the press release, is to allow promoters to increase or consolidate through buyback up to 5 per cent per annum. In fact, the regulator has also informally informed several individuals who raised these questions.

Another aspect of the amendments, which have come under debate, is the application of regulation 11(2) even to non-promoters due to buyback.

Amendments mark a significant turning point as shareholders holding 55 per cent or more shares no longer need to approach the takeover panel for seeking exemption from making public announcements for up to 5 per cent increase in their shareholding due to buyback.

Before the amendments were made, shareholders approached the takeover panel to seek exemption from making a public announcement if they anticipated that increase in their shareholding will require a public announcement to be made.

Experts feel the amendments may be disadvantageous to promoters if their shareholding increases by more than 5 per cent due to an open market buyback, as they will still have to make a public announcement even when they are prohibited from participating in such buybacks.