Changes in SEBI Takeover Regulation w.e.f. June 16, 2020

SMALL INVESTORS’ WELFARE ASSOCIATION

Email : SirenBajao@gmail.com

Amendment in the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, w.e.f. June 16, 2020.

I. In regulation 3, in sub-regulation (2), the following new proviso shall be inserted before the

existing provisos, namely –

“Provided that the acquisition beyond five per cent but upto ten per cent of the voting

rights in the target company shall be permitted for the financial year 2020-21 only in

respect of acquisition by a promoter pursuant to preferential issue of equity shares by

the target company.”

II. In regulation 6, in sub-regulation (1), the following shall be inserted after the first proviso,

namely,-

“The relaxation from the first proviso is granted till March 31, 2021.”

This is a welcome change in the difficult times of COVID-19. Promoters will get the chance to enhance their holding in the company at a relatively low prices and the company will get additional funds. The increased financial commitment of the promoter will boost the confidence of the minority shareholders of the company.

Special relaxation has been given to promoters for increasing their holding beyond 5% but up to 10%. Such increase can take place only through preferential allotment. This is a special short term measure during the COVID 19 period and shall end with the end of the financial year on 31 March 2021.

By inserting a proviso after the first proviso under regulation 6(1)  further relaxation has been granted till March 31, 2021 and now a voluntary open offer can be made by the promoters even if they have acquired shares in the previous 52 weeks. This relaxation during this COVID -19 periods has been allowed together with the relaxation granted under regulation 3(2) by which open offer obligation shall not be attracted for the financial year 2020-21 if the promoter shareholding is increased beyond 5% and up to 10% in the FY 2020-21 by means of preferential issue. The net effect is that, now a promoter can first get preferential allotment done up to 10% and then go for voluntary open offer for additional  10% or more. The advantage to the promoter would be that in case of preferential allotment, the price shall be fixed with reference to historic price whereas the price to be offered in Open offer should be higher, else there will not be many takers for the Open Offer.