FIs biggest stumbling block in takeovers

Institutions individually and collectively control substantial stakes in corporates well over the significant 26 per cent level, and most certainly over the trigger points of 5 per cent and 15 per cent specified in the Sebi takeover regulations. Although the SEBI committee on takeovers held extensive discussions on FI role in takeovers, the code exempts the public financial institutions from the purview of the Sebi Substantial Acquisition of Shares and Takeovers regulations, both as acquirers on their own account and as pledgees.

According to government sources, the Finance Ministry and the regulator SEBI have quot;already noticed the negative rolequot; being played by the institutions in takeovers. quot;One can expect some changes in the role of FIs in the takeover business in the near future,quot; government sources said. The sole supporters of FIs are promoters with low equity holding and poor track-record in managing their companies. quot;They want status quo to continue8230; FIs should not encourage more takeovers. Come what may, they should support existing promoters,quot; they said.

What is perplexing investors is the different stand being adopted by institutions. While IDBI chairman GP Gupta openly says he is quot;against hostile bidsquot;, LIC officials say they are not averse to the idea of responding to hostile bids. On the other hand, ICICI has even funded a foreign company 8212; Lafarge 8212; in the takeover of Tata Steel8217;s cement unit. While ICICI had defended its stance in the Lafarge funding case backed by legal opinion, it was a fact that IDBI and UTI had declined to fund the French company when the same proposal was submitted to them.

The Indian corporate history had several examples of ganging up against takeover predators. In the 8217;80s, the entire private sector ganged up against Swaraj Paul who planned a takeover of Escorts. Three years ago when ICI made bid for Asian Paints, it was thwarted again. While there corporates themselves took the lead in thwarting the attempts, now FIs seem to have taken on the mantle.

Experts feel that the regulator now needs to tighten the loopholes in the takeover code by bringing the ole of FIs. If an acqurier gets a major stake becomes the promoter8217;, FIs should consider handing over the management. Surely, it should be subjective; any Tom, Dick and Harry should not be given a company in this manner. The country, no doubt, needs more takeovers. Non-performing managements should be allowed to be taken over. Investors are bound to benefit from hostile takeovers as market capitalisation will rise giving them some hope to get back their investment.

Said the chief of an old Mumbai-based investment firm, quot;share prices of many companies are rock-bottom now. This8217;s the right time for takeover predators to move in.quot; But the moot question is: will FIs allow that to happen?