A grey area seems to have emerged in SEBI (Substantial Acquisition and Takeover) Regulations, 1997 or simply takeover code. This area is specifically relates to hitting of trigger point by acquiring 15% or more shares in the form of Depository receipts.
The case relates to the exemption application filed by Bharti Airtel and MTN to acquire 36% of shares in Bharti by MTN, Bharti on the other hand according to this complex cross border deal will acquire 49% shares in MTN. In the given case MTN is acquiring 36% shares by subscribing to the GDRs of Bharti. Technically takeover code is only applicable to Indian companies and shares held in India, it excludes the Depository Receipts which are held outside India and are subject to the regulations for the foreign regulator, even though the underlying deposits are of Indian shares.
The SEBI has given the exemption to the MTN to acquire 36% share without hitting the trigger point, which is, not making a public offer to acquire a further 20% shares in Bharti. Since the shares are in the forms of GDR, SEBI has asserted that they are not shares held in India per-se. This decision puts into light a glaring loophole, now investors fear that cross-border acquisition now can be done by skirting the open offer clause. Effectively this decision could facilitate sidestepping of the takeover code itself.
It should be the high time for plugging this loophole.
© Tarun Mitra
The data has being take from “Dangerous Exemption” appeared in July 20, 2009 issue of The Businessworld magazine.