Open offer relaxation, preferential share allotment pricing norm changes likely among major changes to be made by Sebi

However, Moin Ladha, Partner, Khaitan & Co, told Moneycontrol: “A blanket interest payment requirement would create difficulties in scenarios like a frivolous complaint/litigation against the existing management which are not in any way attributable to the acquirer”.

Currently, only delays on account of non-receipts of statutory approvals fall under the ambit of the Takeover Code.

Fortis Health Care investors stand to benefit if this change is made as Japanese drug maker Daiichi Sankyo has stalled an open offer by Malaysia’s IHH Healthcare to acquire the shares of Fortis Healthcare.

IHH Healthcare bought Fortis for $1.1 billion in a bidding process in August 2018.

The Supreme Court had earlier withheld an open offer by IHH after Daiichi had filed an affidavit on January 15, 2019, to stall the transfer of funds from Fortis to Religare Health Trust (RHT).

Malvinder and Shivinder Singh, the erstwhile promoters of Fortis Healthcare, had lost control of the company in February 2018 after lenders invoked the pledged shares with the approval of Supreme Court.

Daiichi is trying to enforce a Rs 3,500-crore arbitration award against Singh brothers it got from Singapore tribunal.

The Sebi board may also discuss Chinese investment through the Foreign Portfolio Investor or FPI route and other SAST amendment proposals, including allowing bulk and block deals for completion of acquisitions.

"Sebi's plan to permit acquisition of shares during the offer period even when the acquisition is made through a block deal (like a deal executed through an Share Purchase Agreement on the stock exchange) or through a bulk deal (like placement of purchase orders on stock exchanges) will rectify the unintentional exclusion of these deals from Regulation 22 (2A) of the Takeover Code," Lalit Kumar, Partner, JSA Advocates and Solicitors, said.

Another proposal likely to be considered is the deposition of 100 percent money into an escrow account for an indirect acquisition. Currently, this is applicable for direct acquisition only.

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As per the Sebi discussion paper, "The current framework of Takeover Regulations does not stipulate a mandatory requirement of  deposit in  an  escrow account a sum equivalent to 100 percent of the consideration payable under an open offer, in case of an indirect acquisition of shares/voting rights in, or control over the target company where public announcement of the offer has been made under Regulation 13(2)(e). It is felt that the Takeover Regulations should not differentiate between direct acquisitions and indirect acquisitions when providing safeguards for shareholders who wish to avail the exit opportunity provided by an open offer".

"However, enhancing the minimum requirement for indirect acquisitions may create difficulties in case of global transactions where the Indian connection is only incidental. In my view, appropriate safeguards already exist in the regulations and indirect acquisitions are deemed as direct acquisitions if prescribed thresholds are met," Ladha said.

The Sebi board may also discuss relaxation on preferential allotment pricing. This could be similar to the relaxation given to stress assets.

"Sebi may give temporary relaxation to companies for pricing preferential allotment based on the average price for the last two weeks instead of six weeks now. However, this is the industry demand and may be applicable for a specific time period. As share prices have come down significantly due to COVID-19, this relaxation will be helpful for raising money from the market," a source told Moneycontrol.

Srinath Sridharan, independent markets commentator, told Moneycontrol: "In an open offer, if the rule of average price of six months is changed to anything around 2-3 months, it would help the promoters as the acquisition price could be lower, considering the lower valuations in the past 2-3 months."