Fresenius Kabi: SEBI Order on Delisting

[The following post is contributed by Yogesh Chande, who is a Consultant with
Economic Laws Practice, Advocates & Solicitors. Views of the author are
personal]
It
may be recalled that, pursuant to an announcement
issued by Fresenius Kabi Oncology Limited (target company) on 30 May 2012, the
stock exchanges were informed that its promoter shareholders have notified the
target company of their intention to undertake one or more “offer for
sale” on the stock exchanges (OFS), in one or more tranches
and thereby increase the public shareholding of the Company. Accordingly,
pursuant to an OFS in October 2012, the promoters had divested 9% and as a
result the promoter shareholding came down to 81%.
In
view of certain developments, the promoters of the target company proposed
a voluntary delisting of the target company. However, the target company was
found to be non-compliant with the minimum public shareholding norms as on the
date of the interim
order
dated 4 June 2013 (interim order) that was issued to a
number of companies who had failed to comply with those norms (discussed here).
Pursuant to the interim order, the target company had filed an appeal
challenging the interim order before the Securities Appellate Tribunal (SAT).
SAT directed the target company to approach SEBI and SEBI was directed to take
the decision within a period of four weeks.
SEBI’s
whole time member, pursuant to an order
dated 22 July 2013 (Order), has now permitted the promoters of the target company
to proceed with the delisting, subject to the condition that, the pre-OFS
promoter shareholding [90% and not 81%] be considered for computing the
percentages under regulation 17 of the SEBI (Delisting of Equity Shares)
Regulations, 2009 (Delisting Regulations) to determine whether the delisting is
successful.
In
view of the above, the promoters of the target company will have to thus
acquire 50% of 10% [based on pre-OFS shareholding of 90%] to delist the target
company, which will increase the promoter shareholding post delisting to 86%
i.e. 81% plus 5%, but excluding the 9% shares which were diluted in the OFS. To
put it in simple terms, but for the Allegations [mentioned below in the
subsequent paragraph], at 81% promoter shareholding [post OFS], to delist the
target company the promoter should have otherwise acquired additional 9.5% [50%
of 19% public shareholding] and reached up to 90.50%, including the shares
which were sold in the OFS.
The
rationale to not delist the target company based on the promoter shareholding
[after OFS] at 81% i.e. to exclude those shares which have been sold by the
promoters in the OFS as per para 11 of the Order is that SEBI had received
complaints from investors alleging that the entities who purchased shares in
the OFS may have participated in the OFS with an intent to subsequently tender
their shares at an artificial price in the bids for the delisting offer, which
will be in collusion with the promoters of the target company, and thus enable
the promoters to successfully delist the target company (Allegations). The Order,
however does not go into the analysis of whether the Allegations referred to in
para 11 of the Order were merely allegations or otherwise. The Order also does
not appear to contain any directive to investigate the Allegations. In this
regard, it may be noted that, in terms of regulation 4(5) of the Delisting
Regulations, a promoter or a person is, inter
alia
, prohibited from employing any device, scheme etc. to defraud any
shareholder or other person or engage in any act or practice that is
fraudulent, deceptive or manipulative in connection with any delisting sought.
Be
that as it may, the Order and more particularly the observations made in para
10 of the Order[1]
may bring some relief also for other companies which have been found to be
non-compliant with the minimum public shareholding norms as on the date of the
interim order, provided those companies have also taken steps which
demonstrates their intention to comply with the minimum public shareholding
requirement prior to the date of the interim order, subject to them having made
representation and filed their replies within a period of twenty one days as
prescribed in para 21 of the interim order.

– Yogesh Chande



[1] QUOTE
— …….including the OFS made in October
2012 which clearly shows the intention of the Company was to comply with the
MPS requirement.
— UNQUOTE

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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