The Securities and Exchange Board of India (Sebi) is reviewing some of the provisions of the new takeover code that have been identified by industry participants as impractical and hampering the deal-making process.
According to persons familiar with the development, the capital market regulator is looking at provisions related to creeping acquisitions and the definition of persons acting in concert (PAC) after the issues were highlighted by corporates, investment bankers and lawyers.
The new takeover code has set a limit of 5% per financial year for creeping acquisitions, which, according to experts, creates a strange situation wherein an entity can acquire 10% in a period of two days.
?An entity can acquire 5% on March 31 and then again 5% on April 1 ? that defeats the spirit of the creeping acquisition laws,? said a securities lawyer who has submitted his views to the regulator. ?We have suggested that the 5% creeping acquisition should be computed on a year-to-date basis.?
The Takeover Regulations Advisory Committee (TRAC) formed under the chairmanship of the late C Achuthan submitted its 139-page report to Sebi in July 2010, which was finally approved by the regulator with some modifications in 2011.
?The committee recommends a creeping acquisition limit of 5 % per financial year computed on a gross basis for all shareholders holding more than 25 % so long as the maximum non-public shareholding limit is not breached,? the report noted.
Another provision of the new norms that is under review relates to the definition of PACs that play an important role in any acquisition or open offer matter. The committee has prescribed a three-year period to ascertain if the entities are PACs.
Industry players said the three-year period is too long and the definitions should be transaction-based rather than time-based.
Industry players said that even the Supreme Court and the Securities Appellate Tribunal (SAT) have issued orders on this subject.
Moreover, the committee has exempted entities from making an open offer after an acquisition only if such entities have been PACs for not less than three years prior to the proposed acquisition, and disclosed as such pursuant to filings under the listing agreement.
In respect of inter-se transfers among certain qualifying parties, as listed and defined under the takeover regulations, the committee has recommended that, in order to curb the abuse of introduction of new entities as qualifying parties, in most cases a requirement of pre-existing relationship of at least three years should be prescribed.