Status note on Corporate Restructuring in India 1.

0 Corporate restructuring exercises resulting in substantial acquisition of shares and takeover of management/ control, buy- back of securities and delisting of listed companies fall within the domain of SEBI.

2. 0

This memorandum endeavours to provide an overview of the activity in the realm of corporate restructuring during the last quarter of the FY 2008-09 (January 2009-March 2009), the first quarter of the FY 2009-10 (i.e. April 2009- June 2009) and the period (July August 2009) for the following activities (i) substantial acquisition of shares and takeover (ii) buy back and (iii) delisting of listed companies.

3. 0 3.1

SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVER Pursuant to substantial acquisition of shares or change in control in a listed company, an acquirer has to, in accordance with the Takeover Regulations, make an offer to the public shareholders (referred as open offers) so as to give them a fair opportunity to exit the company if they so wish.

3.2

Open offers

3.2.1 The activity in the field of corporate takeover in the country was noticeably affected by the global economic melt-down. Only 39 open offers were made to the public during this period, a little over half the number of offers made in the preceding eight month period. The biggest open offer in terms of offer size during this period was the open offer made for Satyam Computers with an offer size of Rs.1154 crores. The average offer size during this period also showed a slight dip as compared to the preceding eight month period.

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Open Offer Trends

160 140 120 100 80 60 40 20 -

Average offer size in Rs. Crores Number of offers made May-December January-August 2008 2009 Time-line

3.2.2

It may be noted that out of the 39 offers made during the period of January-August 2009, 13 were made by foreign acquirers.

3.3

Exemptions from open offer obligations via the Panel route

3.3.1 The Takeover Regulations have in-built provisions whereby certain scenarios where an open offer need not be made are explicitly exempted. The same are provided under Regulation 3 of the Takeover Regulations. Further, in respect of cases which are not covered under the aforementioned exemption categories, exemption can be sought by making an application under Regulation 4, which are considered by the Takeover Panel. The Panel is currently headed by Shri. K. Kannan. Shri. P.N. Shah, Shri. C. R. Mehta and Shri. R. S. Loona are the other members of the Panel. Post receipt of recommendation from the Panel, the case is considered by the WTM and order is passed.

3.3.2 During the eight month period from January-August 2009, a total of 9 orders were passed. In majority of the cases, exemption had been sought with respect to increase in promoters stake pursuant to the buy-back offers made by the companies. It may be pertinent to mention here that the Board had in its meeting held on July 10, 2009 approved a proposal to Page 2 of 9

give automatic exemption upto 5% creeping acquisition resulting upon buyback and the regulations have since been amended. It is expected that with this amendment, the number of requests for such exemption is likely to reduce.

3.4

Informal guidance/ interpretative letters

3.4.1 The captioned scheme was introduced by SEBI on June 24, 2003. Since its inception, many applications have been received under this scheme from entities seeking clarity regarding the interpretation of one or more part of the Takeover Regulations in the context of a proposed transaction.

3.4.2 During the eight month period from

January- August 2009, five

interpretative letters were issued by SEBI under this scheme, four of which were related to interpretation of the provisions pertaining to automatic exemption available under Regulation 3 of the Takeover Regulations and the fifth was related to interpretation of the creeping acquisition limit available under Regulation 11(1) of the Takeover Regulations. One of the requests for informal guidance was made by Bharti Airtel Limited (Bharti) which inter-alia required interpretation with respect to the applicability of Chapter II and Chapter III of the Takeover Regulations in connection with a proposed transaction with MTN Group Limited (MTN) whereby MTN and its shareholders would receive GDRs which, if exchanged for underlying shares of Bharti would constitute approximately 25% of the share capital of Bharti. SEBI, vide informal guidance letter dated June 22, 2009 issued in the matter stated that in the light of Regulation 3(2) read with Regulation 14(2) of the Takeover Regulations, MTN and/or its shareholders would be required to comply with Chapter III of the Takeover Regulations only upon conversion of the GDRs into equity shares with voting rights. SEBI also stated that requisite disclosures under the provisions of Chapter II of the Takeover Regulations however have to be made by MTN and/or its shareholders. The said informal guidance has been challenged in SAT

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and SAT decreed that the informal guidance is not an order which could entitle one to file an appeal and thus disposed of the appeal. A public interest litigation (PIL) has been filed before the High Court of Bombay by an NGO called Forum For Financial Fairness challenging the said informal guidance on the grounds that Regulation 3(2) and Regulation 14 (2) are discriminatory to Indian investors and that in the case of Bharti-MTN, the GDRs will have 25% voting rights which will be exercisable at the instruction of MTN thereby putting MTN in a position to control 25% of the voting rights in Bharti. The said PIL is currently pending before the High Court of Bombay.

3.5

Policy Initiatives: During the eight month period, SEBI has taken some policy decisions which have been duly reflected in the Takeover regulations through amendments notified over this period, the details of which are as under:

3.5.1 Disclosure of pledged shares: Vide notification dated January 28, 2009, SEBI amended the regulations and provided formats for disclosing details of shares pledged by the promoters on a quarterly basis to the company and to the stock exchanges. These disclosures aim at providing an alert to the shareholders about any possible dilution in the stake of the promoters. It may be noted that the necessity of requiring such disclosures was engaging the attention of SEBI for quite sometime and was slated to be considered by one of standing advisory committees after looking at international practices. The Satyam episode lent an urgency after which it was discussed at a meeting of SCODA and then introduced with the boards approval.

3.5.2 Relaxation from the open offer provisions in unique scenarios: In order to facilitate takeover of companies in situations similar to that of Satyam Computers, SEBI inserted special provisions to exempt the

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acquirers from one or more of the

mandatory requirements stipulated

under the Takeover regulations, including manner of computation of the offer price subject to certain conditions. SEBI also introduced a regulation forbidding competitive bids once an acquirer made a public announcement as per the aforementioned special provisions. This was done to ensure a speedy bidding process and faster transition of control thereby quickening the process of revival of the company.

3.5.3 Interpretative Circular regarding applicability of provisions of regulation amended regulation 11(2): Vide amendment dated October 30, 2008 SEBI made permissible additional acquisitions of upto 5% through certain specified means for persons holding stake in the 55-75% range in a company. Since the introduction of the aforestated amendment, SEBI has been receiving numerous queries regarding its interpretation. Therefore, vide captioned circular, SEBI has clarified the manner, the time-period and the maximum applicable limit upto which additional shares or voting rights upto five per cent (5 %) in a company can be acquired without triggering an open offer. (Copy of the notification enclosed for information of the Board - Annexure I)

3.6

Judgments of SAT during the period under review: SAT has passed judgments on eight cases addressing various aspects of the Takeover Regulations. The details of these judgments are annexed at Annexure II.

3.6.1 The most prominent cases where SEBI has appealed or is planning to appeal against SAT judgments are given in brief below: a. Disa India Ltd: A case of indirect acquisition in which, since the parent company was not based in India, no public announcement (PA) in terms of the regulations was made in Indian newspapers in connection with the acquisition of the parent company, although the fact was informed to stock exchanges in India through corporate announcements and a press release

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was also issued overseas. The chief question in this case was whether, where no public announcement has been made or required to be made in terms of local laws for the acquisition of shares of parent company, the date when the share sale and purchase agreement has been entered into for the acquisition of shares of parent company can be taken as the date of PA for the purposes of calculation of offer price. Going on the basis that the trigger indeed is the signing of the agreement and the acquirer was obligated to make an offer upon such trigger and also taking into account the press release issued and announcement to the exchanges, SEBI gave directions to take that date also into account in calculating offer price. The direction of the Board was set aside by SAT on the ground that since no public announcement was made when the parent company was acquired, the date on which share and stock purchase agreement was executed cannot be taken as the date for the purpose. In the light of the SAT verdict, it appears that the parameters stipulated for calculation of the offer price shall only be partially applicable in case of indirect acquisitions involving an unlisted parent company.

b.

Dunlop India Ltd: The acquirers (Wealth Sea Pvt. Ltd. and Manali Properties and Finance Pvt. Ltd.) indirectly acquired 74.5% shares in Dunlop India Ltd. (Dunlop) which triggered the Takeover Regulations. The acquirers made the public announcement at an offer price of Rs.10 per share which was further increased to Rs.17.50 per share. SEBI was not satisfied with the offer price as this offer was pursuant to a transaction whereby the shares of two companies, namely Falcon Tyres

Limited(Falcon) and Dunlop had been acquired by paying a consolidated amount without assigning a separate price to each of them . Also, SEBI received complaints regarding the offer/acquisition price. Therefore, SEBI appointed an independent valuer for valuing the shares of Dunlop and Falcon. The independent valuer advised Rs.43.73 as the offer price per share for Dunlop. Accordingly, SEBI directed the acquirers to revise the

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offer price. The acquirers filed an appeal before SAT against the said direction of SEBI. It may be noted that SAT has ordered another valuer to value the shares of Dunlop and submit its report to SEBI within one month of receipt of the order on the grounds that the valuation report of the independent valuer appointed by SEBI suffers from several defects. SEBI has filed a review petition before SAT.

3.7

Other initiatives

3.7.1 In view of the various judgments of the Honble SAT and the Supreme Court interpreting several provisions of the Takeover Regulations and also in view of the fact that SEBI has been receiving a number of requests for clarification and interpretation of the Takeover Regulations, SEBI has decided to review the Takeover Regulations.

3.7.2 To this effect, a Takeover Regulations Advisory Committee (TRAC) under the chairmanship of Shri C. Achuthan has been set up vide order dated September 04, 2009. Other members include Shri Kumar Desai, Shri

Somasekhar Sundaresan, Shri Kaushik Chatterjee, Shri Y. M. Deosthalee, Prof N. Venkateshwaran, Shri A K Narayanan, Shri Sourav Malik, Shri Raj Balakrishnan, Smt. Usha Narayanan, Shri J. Ranganayakulu and Smt. Neelam Bhardwaj. TRAC would be requiring to review all the provisions of the Takeover Regulations inter-alia keeping in mind the current market structure.

4. 0 4.1

BUY-BACK OF EQUITY SHARES The activity in the field of buy-back offers continued unabated by the global economic melt-down. A total of 32 buy-back offers were made to the public during this period while 30 such offers were made in the preceding eight month period. The biggest buy-back offer in terms of offer size during this period was the buy-back offer made for Reliance Infrastructure Limited having an offer size of Rs.2000 crores. The average

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offer size during this period remained at par with that during the preceding eight month period. An over-view of the activity in the field of buy-backs during the period January- August 2009 is placed beneath: Buyback Statistics
120 100 80 60 40 20 0 May-December January-August 2008 2009 Average offer size in Rs. Crores Number of offers made

5. 0 5.1

DELISTING Notification of Delisting Regulations: The guidelines for delisting, first put in place in 2003 and subsequently amended, were legally fortified with the notification of the Delisting Regulations on June 10, 2009. Special provisions to facilitate delisting of small companies, redefining the scenarios in which a delisting offer is deemed successful, explicit provisions for debarment of promoters and directors of compulsorily

delisted companies from the stock exchanges are among the prominent additions that make the regulations more guidelines. robust as compared to the

5.2

Circular regarding applicability of the Delisting guidelines vis--vis the Delisting Regulations: Transitional provisions have been inserted in the Delisting Regulations so as to smoothen the gradation from the Delisting Guidelines to the Delisting Regulations. SEBI has been receiving many queries regarding these transitional provisions. SEBI is in the process of clarifying the corporate events and timelines which shall Page 8 of 9

determine whether the Delisting Guidelines or the Delisting Regulations apply in a particular case.

6. 0

PROPOSAL The Board is requested to please take note of this memorandum.

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