SEBI Pleases All, Overhauls Key Takeover Code Clauses

Business Standard ,  Mumbai, 28 May

UK Sinha was in a please-all mood while announcing his first major set of decisions as the chairman of the Securities and Exchange Board of India (Sebi).

While a key change in the Takeover Code will be a major relief for companies seeking to acquire or merge, reintroduction of a small entry load in mutual funds will make distributors happy. There are some goodies for retail investors, too, as the regulator has simplified the initial public offer (IPO) application form and provided for an abridged prospectus.

A uniform KYC – Know Your Client – procedure across market intermediaries and a separate KYC Registration Authority are also on the anvil.

TAKEOVER CODE

The capital markets regulator increased the open offer size from 20 per cent to 26 per cent, much lower than the 100 per cent proposed by the Takeover Committee under the chairmanship of C Achuthan. The open offer trigger limit, however, has been increased from 15 per cent to 25 per cent – in line with the proposal of the panel.

Sinha said the rationale for increasing the open offer size was to create a level-playing field for all potential acquirers, an issue that was strongly highlighted by representatives of India Inc during meetings with regulatory officials.

“In the absence of acquisition finance in our country, it was felt that (100 per cent offer size) would give outside acquirers an advantage,” said Sinha, while addressing the media. “While it is desirable, the decision was likely to have helped only one set of entities,” he added.

Observers say it simplifies acomplicated law. They said many investors, particularly private equity players, were not able to invest in listed companies in excess of 15 per cent because of the open offer requirement. Now, they can buy up to 25 per cent without having to make an open offer.

Sourav Mallik, senior executive director, M&A, Kotak Investment Banking, and a member of Sebis takeover panel, said raising the threshold from 15 per cent to 25 per cent would allow companies to access growth capital easily. “Though there is no direct relation between the Takeover Code and M&A deals, the regulatory changes will ensure better prospects of future M&A deals,” he added.

Pavan K Vijay, founder, Takeovercode.com, said the new code struck a balance between promoters and acquirers.

In another important decision, the regulator accepted the takeover panel’s recommendation on doing away with the non-compete fee. “There shall be no separate provision for a non-compete fee and all shareholders shall exit at the same price,” said Sebi.

Though many said this was awelcome move as it did away with the discrimination against minority shareholders, industry chamber Confederation of Indian Industry was not happy with this.

MF TRANSACTION CHARGE

The capital market regulator has allowed mutual fund (MF) distributors to levy a transaction charge of `100 per subscription. This, however, will not be applicable if the investment is less than `10,000. An additional `50 can be charged from first-time MF investors. For systematic investment plans, the charge can be recovered in three or four instalments. These charges will be over and above the existing commissions. A common account statement will be sent to investors every month.

In another relaxation to fund houses, the regulator allowed a common set of fund managers and research analysts for different pooled assets like offshore funds and pension funds. At present, fund houses have to maintain separate sets of people for such assets.