Inter-se Transfer of Shares/Voting Rights under SEBI Regulations

TG Team 21 Apr 2015 24,980 Views 1 comment Print SEBI | Articles

CS D Hem Senthil Raj

Acquisition Of Shares Or Voting Rights Pursuant To Inter-Se Transfer Among Qualifying Parties Under SEBI (Substantial Acquisition Of Shares And Takeover) Regulations, 2011

OVERVIEW:

General Exemption from making an open offer:

According to Regulation 10(1) (a), acquisition pursuant to inter se transfer of shares among the qualifying parties are exempted from the obligation to make an open offer under regulation 3 and regulation 4.

Who are Qualifying Parties?

The qualifying parties are:

i) Immediate relatives;

ii) Persons named as promoters in the shareholding pattern filed by the target company in terms of the listing agreement or these regulations for not less than three years prior to the proposed acquisition;

iii) A company, its subsidiaries, its holding company, other subsidiaries of such holding company, persons holding not less than 50% of the equity shares of such company, other companies in which such persons hold not less than 50% of the equity shares, and their subsidiaries subject to control over such qualifying parties being exclusively held by the same persons.

iv) PACs for not less than 3 years prior to the proposed acquisition, and disclosed as such pursuant to filings under the listing agreement.

v) Shareholders of a target company who have been PACs for a period of not less than 3 years prior to the proposed acquisition and are disclosed as such pursuant to filings under the listing agreement, and any company in which the entire equity share capital is owned by such shareholders in the same proportion as their holding in the target company without any differential entitlement to exercise voting rights in such company.

Conditions to be satisfied for availing the above general exemption:

a) Acquirer to give prior notice of proposed acquisition (at least 4 working days prior to proposed acquisition) to stock exchanges where shares of the target company are listed (Regulation 10(5)).

b) If the shares of the target company are frequently traded, the acquisition price per share shall not be higher by more than 25% of the Volume Weighted Average Price (VWAMP) for a period of 60 trading days preceding the date of issuance of notice to stock exchanges as per (a) above, as traded on the stock exchange where the maximum volume of trading in shares of the target company are recorded during such period.

If the shares of the target company are infrequently traded, the acquisition price shall not be higher by more than 25% of the price as per regulation 8(2)(c).

c) The transferor and the transferee shall have complied with applicable disclosure requirements set out in chapter V.

What Regulations 8(2)(c) says:

In the case of direct acquisition of share or voting rights in, or control over the target company, and indirect acquisition of shares or voting rights in, or control over the target company where the parameters referred to in sub-regulation (2) of regulation 5 are met, the offer price shall be:

(c) The highest price paid or payable for any acquisition, whether by the acquirer or by any person acting in concert with him during the twenty six weeks immediately preceding the date of public announcement.

Rationale for Exemption of Inter-se Transfers:

The rationale for exempting inter se transfers among qualifying parties is spelt out by TRAC as under:

“Acquisitions arising out of inter se transfer of shares among qualifying parties as specified under the Regulations would be exempt from making an open offer. The nature and type of such qualifying parties has been spelt out with the underlying principle being that such transfers do not represent a typical acquisition carrying an economic value, which ought to result in providing an exit opportunity to all shareholders, The only circumstances where this principle has been deviated from is to permit transfer between co-promoters or persons acting in concert, who have been disclosed as such for at least three years, and that too only if the premium being paid to the exiting party is less than 25% of the VWAP over the 12 weeks period and subject to the parties having complied with all their disclosure obligations.”

PROCEDURAL CHECKLIST FOR ACQUISITION OF SHARES/VOTING RIGHTS THROUGH INTER-SE TRANSFER:

*S.No*	*Particulars*	*Disclosure by*	*Disclosure to*	*Timeline*
1	Disclosure under regulation 10(5) – Intimation to Stock Exchanges in respect of acquisition under Regulation 10(1)(a) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011	Promoter(Acquirer)	Stock Exchange	Intimation Disclosure to be filed with SE’s with at least 4 working days prior to the date of proposed acquisition.
2	The Delivery Instruction Slip duly signed by the seller to be submitted to the Depository Participant for the purpose of effecting the transfer of shares.	Promoter (Seller)	-NA-	On or after the 5^th day of Notice to SE’s.
3	Disclosures under Regulation 10(6) – Report to Stock Exchanges in respect of any acquisition made in reliance upon exemption provided for in Regulation 10 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.	Promoter (Acquirer)	Stock Exchange	To be filed with SE’s within 4 working days from the date of acquisition of shares/voting rights.
4	Disclosure under Regulation 29(1) – Acquirer together with PAC acquires 5% or more in aggregate of the shares or voting rights of the target company (together with the existing shares or voting rights held by them)	Acquirer	Stock Exchange&Target Company	Within 2 working days of the receipt of intimation of allotment of shares or acquisition of shares or voting rights.
5	Disclosure under Regulation 29(2) – Acquirer together with PAC holding 5% or more in a target company shall disclose every acquisition or disposal of shares representing 2% or more of the shares or voting rights.	Acquirer/Seller	Stock Exchange & Target Company	Within 2 working days of the receipt of intimation of allotment of shares or disposal or acquisition of shares or voting rights as the case may be.
6	Disclosure under Regulation 13(4) of SEBI Prohibition of Insider Trading Regulations 1992 – For Change in Shareholding or voting rights held by Director or Officer and his dependants or Promoter or Person who is part of Promoter Group of a listed company.	Promoter/Director/Officer/Substantial Shareholder(s)	Stock Exchange & Target Company	Within 2 working days of the receipt of intimation of allotment of shares or disposal or acquisition of shares or voting rights as the case may be.
7	Disclosure under Regulation 13(6) of SEBI Prohibition of Insider Trading Regulations 1992 – For Change in Shareholding or voting rights held by Director or Officer and his dependants or Promoter or Person who is part of Promoter Group of a listed company.	Target Company	Stock Exchange	Within 2 working days of the receipt of information received under sub regulations (4) of Regulation 13 of SEBI (PIT) 1992.
8	Disclosure under Section 93 of Companies Act, 2013 and Rule.13 of The Companies (Management and Administration) Rules, 2014.	Target Company	Registrar of Companies	Within 15 days of such change in Form No. MGT 10.