The Securities and Exchange Board of India?s (Sebi) takeover panel?s recommendation of increasing the trigger point for open offers from existing 15% to 25% will give large investors more legroom to ratchet up their stake.
Today, there are investors?both institutional and individual?who are forced to maintain their shareholding a shade below 15% in order to avoid triggering of open offer. Under Sebi?s current guidelines, any entity that purchases 15% equity, either from the promoters or from the open market, is required to make a mandatory open offer for atleast another 20% in the target company.
But usually big institutional investors, might not be interested in acquiring the company. Therefore, they cap their shareholding just below 15% to avoid triggering an open offer. If the new takeover draft goes through, such investors will be able to increase their shareholding to up to 24.99% without bothering about an open offer.
There are about 98 such companies in the BSE 500 category where a single entity owns between 10% and 14.99%. For instance, ITC currently holds 14.98% stake in the hospitality major EIH. The FMCG major, which has been accumulating EIH shares since 2000, has maintained the shareholding at less than 15% level to avoid a mandatory open offer. But if the threshold limit that triggers an open offer is revised, ITC can up its holding in EIH and this could result in a rally in its share price. Interestingly, share price of EIH gained 4.41% in Monday?s trade when the broader market closed negative.
The biggest beneficiary of this norm could be LIC. Currently, LIC has holdings between 10% and 14.99% in 32 companies from the BSE 500 index. If the new norm is implemented LIC, which is arguably the biggest investor in Indian markets, will get the maximum legroom to up its holdings in these 32 companies. ?Having a shareholding of around 14% is quite big and it?s not necessary that investors will increase it to 25%, said Satish Menon, director, operations, Geojit BNP Paribas Financial Services.
Most markets experts were also doubtful whether the the new norm will necessarily trigger a rally in such stocks. Dhanraj Bhagat, partner – specialist advisory services, Grant Thornton, ?It is not necessary that the market will always react positively if someone hikes their stake to 25% levels. Investors could perceive it as just another stake hike and so the share prices need not go up.?