Higher Holding in Promoter Firm Won't Trigger Open Offer: SEBI
Bangalore: Market regulator SEBI has said an open offer will not be required to be made for public shares of a listed company, merely due to its majority shareholder witnessing a higher holding by its own promoters.
The position has been clarified by the Securities and Exchange Board of India (Sebi) in an 'informal guidance' sought by Arch Pharmalabs, the majority shareholder of Avon Organics with a 63.6 percent stake.
While Arch Pharmalabs is an unlisted entity, Avon is listed on the BSE and a few other bourses. The Sebi has communicated its position that an open offer would not be triggered for Avon, if promoter group of Arch hike their stake while continuing to remaining in control of Arch, and consequently in control of Avon, after a proposed transaction involving issuance of convertible debentures.
The promoter group of Arch collectively holds 34.27 percent stake, which would rise to 41.49 percent pursuant to a proposed transaction, without affecting the shareholding of Avon.
Arch had told Sebi that one of its corporate promoters AMR Investments holds 7.16 percent stake and is proposing to subscribe to Zero Coupon Fully Convertible Debentures (FCDs) of Arch for an aggregate amount of 150 crore.
These FCDs would be compulsorily convertible into shares within a period of six months from the date of allotment, after which the total promoter holding in Arch would rise to 41.49 percent. Arch has, however, said this increase in promoter holding would not change the voting rights that can be exercised in respect of Avon and there will be no change in control as far as Avon is concerned. Arch would continue to hold 63.6 percent stake in Avon.
Sebi observed that the promoters of AMR are also the co-promoters of Arch, and therefore, an increase in AMR's holding in Arch would not result in change in control of Arch. An open offer is required to be made for purchase of shares held by public investors in a listed company, if the promoter or some other entity hikes their stake beyond a certain limit or by a specific margin.