The finance ministry is not in favour of the proposed 100% mandatory open offer size recommended by a panel set up by the market regulator Sebi. In a clear indication of possible hurdles in implementation of the panel’s key proposals, a government official requesting anonymity told FE: ?A 100% open offer size will put Indian companies at a great disadvantage vis-a-vis their foreign counterparts in the M&A landscape.? He added that although the panel’s proposal could be more equitable to minority shareholders in giving them an opportunity to fully tender their shareholding, it was doubtful if Indian acquirers have the ability to raise the resources necessary for a 100% buyout.
An expert panel chaired by C Achuthan, former presiding officer of the Securities Appellate Tribunal proposed hiking the trigger for open offer to 25% from the current 15% and the offer size to be made for the 100% of equity of the company. While Sebi is waiting for the new chairman before it firms up its views on the recommendations, the finance ministry is holding meetings with the stakeholders over the issue.
Its not just the ministry which is not endorsing the panel’s proposals; industry experts also feel that if implemented, the proposals could hit potential Indian acquirers. A 100% buyout would be indeed difficult for most Indian acquirers, especially in the context of prohibitions on Indian banks to fund share purchases. Rekha Bagry, executive director, PwC, said: ?For an Indian buyer, a 100% acquisition will be very costly as banks don’t fund capital transactions. While Indian companies have fewer options for financing the acquisition, a foreign company in comparison, is free to raise money abroad at much cheaper rates.?
This may hamper the inorganic growth ambitions of Indian companies.
Whether the market watchdog goes with the proposals or not, the decision will be crucial for JSW Steel’s acquisition of over 40% stake in Ispat Industries for about Rs 2,157 crore. Vedanta Resources’ proposed acquisition of a 51-60% interest in Cairn India from Cairn Energy could be affected as well.