FIs want exemption from takeover code

According to SEBI sources, FI officials who attended the meeting opposed any plan to make the open offer clause applicable for FIs. If FI holding in a company crosses 15 per cent, as of now, they don’t need to make open offer while others are required to do so. Currently, FIs also don’t need to inform the companies and exchanges if their holdings exceed five per cent. “We cannot make an open offer under our statute,” said a UTI official.

The recent takeover bids by Arun Bajoria for Bombay Dyeing and AH Dalmia for Gesco Corporation and the committee’s decision to bring clarity on some of these issues are said to be the reasons for the revision in the Takeover Code. "The committee will require at least five days to arrive at its recommendations," Justice Bhagwati (Retd) told reporters after the meeting of the committee here. "The committee will consider the views expressed by financial institutions on Tuesday at its next meeting scheduled to be held for three days beginning December 13 and take a final view on the issues," he said.

The FI role in takeovers came under the spotlight following several controversial decisions by FIs in recent takeovers. The BSES Ltd case, where there has clearly been an activist role played by financial institutions in allowing the Reliance group to have nominees on the board is one of the key reasons which has now prompted Sebi to take a close look at the role of institutions in takeover cases. FIs had initially opposed the entry of Reliance nominees and are resisting giving management control to the group, which has a 26.6 per cent stake in BSES following an open offer they made.

"If they first say they are mere investors and then start deciding on issues of control, then their role has to be assessed," Sebi officials said. The key issue here is that of "control" in a company and in the BSES case FIs appear to be playing a role of the controlling bloc, the sources said.

"There is nothing wrong if they are in control in a company, but that has to be clearly indicated. Then the market knows, and can take its own decision on the company," the sources said, adding that the takeover code can then take a view on recognising them as those in control and get them to fall under the purview of the code. The ACC-Tatas case also saw FIs adopting a very aggressive role too. All these cases are now going to decide the future of how FIs are treated as far as the takeover case is concerned.

The panel is expected to take a view on the creeping acquisition limit of 5 per cent and relaxations thereto and whether a lock-in period can be applied for acquisitions by promoters above this limit to avoid promoters playing in the stocks of their own companies. There was a strong demand from Indian companies to have a re-look at the 5 per cent creeping acquisitions limit to prevent them from being raided by predators. One option is to keep the existing 5 per cent limit as it is, and, if promoters cross it, they may be asked to adhere to a lock-in for those shares for a certain period of time, say one, two or three years. This will prevent promoters from merely turning into traders in their own companies’ shares.

Sources said if there was no lock-in, then promoters could buy shares in the name of consolidation of their holdings and then sell them. "If they want to consolidate their holding, why should they be selling? A lock-in could ensure that they stay in the company," said an analyst.