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Sebi seeks clarity on acquisitions via bourses

Concerned over Mauritius-based investors taking over Indian firms through secondary equity markets, stock market regulator Sebi has sought clarifications from the government on whether such investments should be construed as FDI or FII to remove ambiguity in rules.

Concerned over Mauritius-based investors taking over Indian firms through secondary equity markets, stock market regulator Sebi has sought clarifications from the government on whether such investments should be construed as FDI or FII to remove ambiguity in rules.

The market regulator has written to the Department of Industrial Policy and Promotion in the Commerce and Industry Ministry for this purpose and the matter is being examined, official sources said. Foreign institutional investors can raise their stake in an Indian company beyond 24 per cent if the concerned company’s board passes a special resolution to that effect.

At times, domestic companies are virtually taken over through the FII route, the sources said, adding Sebi has sought clarification on whether such acquisition were not to be treated as FDI so as to ensure norms are not violated. While issues of FDI is dealt by DIPP, issues regarding FIIs are handled by Finance Ministry.

DIPP has been in talks with RBI to sort out the issue for a few months, sources said. While the Reserve Bank looks at pricing of shares in such takeovers, SEBI’s concern is limited to compliance with the Substantial Acquisition of Shares and Takeovers Regulations of 1997.

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According to the sources, SEBI has said that Mauritius-based companies sought to acquire substantial stake in Indian companies in the secondary market.

These overseas companies have low capital base and funds for the purpose flow in from some foreign-based private equity funds.

In the letter, Sebi said there is no initial, real infusion of funds by acquirers in the target company. Besides, the identity of the person in control, management of Indian company is not verifiable, it said.

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Such takeovers could lead to asset stripping of cash rich Indian comapnies, affecting shareholders wealth at large, the letter said.

First published on: 24-11-2006 at 02:11:03 am
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