GDR buyers to come under Sebi open offer rule

In a move which is likely to have implications on takeovers and mergers by foreign companies,especially the $23-billion...

In a move which is likely to have implications on takeovers and mergers by foreign companies,especially the $23-billion Bharti-MTN deal,the Securities and Exchange Board of India has made it mandatory that the existing takeover code would be applicable for entities acquiring Global Depository Receipts (GDRs) or American Depository Receipts (ADRs) with voting rights in an Indian firm.

If an acquirer buys 15 per cent stake in an Indian company through GDRs abroad,the acquirer will have to make an open offer for another 20 per cent of the Indian company at the same price. If you are holding an ADR/GDR with voting rights,then you will have to make an open offer, Sebi chairman CB Bhave said after a board meeting here on Tuesday. While Bhave declined to comment on Bharti-MTN deal in particular,the revised norms would require MTN to make an open offer if it is issued GDRs with voting rights.

The new rule means MTN will have to shell out a huge amount for the open offer if both the parties opt for the GDR route for the deal, said a market source. If Bharti issues GDRs with non-voting rights,then the new rule wont be applicable. Bharti-MTN combine can also appraoch the regulator for exemption in view of the complexities involved. According to the current regulations,any firm acquiring a 15 per cent stake in another company is mandated to make an open offer for an additional 20 per cent in the former. This amendment wouldn’t be applicable on a retroactive basis, Bhave said.

Bharti Airtel said the structure of a transaction under discussion with South Africas MTN Group will be fully compliant with the laws in both countries. All relevant approvals including exemption from open offer from Sebi (if required) would be sought at the appropriate time, Bharti Airtel said in a statement.

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