Sebi to amend takeover code

The Securities and Exchange Board of India (Sebi) is further amending certain norms of the takeover code. The Bhagwati Committee, which is reviewing the code, is discussing its application in the event of a takeover of foreign promoters of Indian companies.

According to the regulator, the applicability of the takeover code and how Indian shareholders will be affected when foreign promoters of an Indian company are taken over is one grey area that is to be sorted out. The problem arises when there is an Indian company (A), which has a holding company (B) in India and its foreign promoters (C) in the US and when the company 'C' is taken over. The regulator would then need to decide whether it amounts to a change of management and whether that would trigger off the takeover code, leading to an open offer to Indian shareholders.

"The committee is debating this issue. The future policy relating to these issues would have to be set out," Sebi chairman D R Mehta told NetScribes.

At a recent committee meeting, various issues came up for discussion and they are being debated, said Mehta. A possible solution, he said, could be asking foreign promoters (who are being taken over) for their stand on the issue and their plans for the Indian subsidiary.

If it amounted to a change in management control, then views of Indian shareholders would have to be taken into account. Further, the regulator would have to decide whether all classes of shareholders would have to be included and/or a special resolution would need to be passed if the takeover code is triggered. In either case, the involvement of the promoter (being a majority shareholder) is crucial, said Mehta.

In the absence of any clear-cut differentiation between change in promoters (which could lead to a change in management control) and change in management, Sebi is dealing with all such cases referred to it on a case-to-case basis. A recent example was that of Castrol India, whose parent, Burmah Castrol, was taken over by British Petroleum. In this case, Sebi ruled that the takeover code would not apply.

Under the Sebi takeover code, whenever any company acquires more than 15 per cent stake in another company, the first company will have to make a public offer of a minimum 20 per cent to shareholders of the company being acquired.

The committee is to finalise its report in a few weeks, Mehta said.

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