A few days ago, when newspapers reported that SEBI was considering an exemption from the minimum pricing norms in the context of a potential takeover offer on Satyam, the obvious question arose as to how an exception can be made in respect of a single company, and that too one which has been the subject matter of alleged fraud. The minimum pricing norms require that when an acquirer obtains 15% or more shares of a company, it has to make an open offer for at least another 20% of the company at a price that is not less than the average of the weekly high and low of the closing prices during 6 months or such average during 2 weeks preceding the date of public announcement of offer, whichever is higher.
The latest board meeting of SEBI decided as follows:
“The SEBI Board examined the request of Satyam Computers Services Limited for exemption from certain provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997.
The Board recognized the special circumstances that have arisen in the affairs of the company and concluded that the issue needs to be dealt with in the general context. Accordingly it was decided to appropriately amend the regulations / guidelines to enable a transparent process for arriving at the price for such acquisition.
The above measures will be effective from the date of amendment to the Regulations / DIP Guidelines / Listing Agreement.”
SEBI’s approach is not to make a specific exception in the case of Satyam, but to revise the rules altogether so that they are applicable to other companies as well. This is helpful in several ways. First, it avoids creating special rules for individual companies. Second, and depending on the form in which the new pricing rules will be enacted, it may benefit other acquirers as well because the existing SEBI rules’ reliance on the 6-month average requires acquirers to make open offers at prices way above the current market prices as markets have been on a decline mode. In any event, the 6-month average has already been relaxed in other similar situations where that average is considered for minimum pricing of various corporate transactions such as GDRs/ADRs/FCCBs and qualified institutional placements (QIP). One may possibly expect similar relaxation on the pricing for takeover offers as well, although the final word on this is still awaited.
On the allotment of warrants in listed companies, SEBI’s decision states:
“It has been decided to amend the DIP Guidelines to increase the upfront margin to be paid by allottees of warrants to 25%. At present, in terms of DIP Guidelines, the allottees of warrants are required to pay a margin of 10% as upfront payment at the time of allotment.”
This seemingly comes in the wake of several promoters allotting warrants that they allowed to lapse because the exercise price turned out to be higher than the market price at the time of exercise. The new rule will make it more onerous for promoters (or other investors for that matter) to take warrants in listed companies as they will have to risk a significant amount of the investment (25%), thereby making warrants a less attractive instrument.
Other decisions by SEBI are the following:
1. Listed companies are to declare dividends on a per-shares basis only (so as to ensure uniformity), and not with reference to par value as that varies from company to company;
2. Timelines for bonus issues have been reduced; and
3. Time frame for announcement of price bands in IPOs has been shortened.
In general, some of these decisions appear to be part of a series of concerted efforts by SEBI to boost capital markets and M&A activity in India.