By George Smith Alexander and Anto Antony - Jul 28, 2011
India’s market regulator eased takeover rules, seeking to lure investors after mergers and acquisitions in the South Asian nation slumped.
The new rules will help investors raise their holdings in companies to as much as 25 percent, without having to offer to buy additional shares from the public, the Securities and Exchange Board of India’s Chairman U.K. Sinha told reporters in Mumbai yesterday. The previous cap was 15 percent. Investors who breach the new limit will have to buy an additional 26 percent stake, Sinha said.
The regulations will help companies attract investors amid a fall in the stock market, said Arindam Ghosh, a partner at law firm Khaitan & Co. The value of acquisitions in India has dropped 37 percent this year to $27.5 billion, data compiled by Bloomberg show. Foreigners account for 63 percent of this spending, the data show.
“This would certainly assist companies in attracting strategic, financial investors,” said Mumbai-based Ghosh. Buyers “can now invest up to 25 percent, without being subject to the rigors of going through an open offer.”
The market regulator, known as SEBI, rejected a proposal from its panel that would have required acquirers to buy all shares of the target company.
“The concern before the SEBI board was that we should not do something that is likely to benefit certain set of acquirers who may be from outside the country,” Sinha said yesterday.
‘Game Changers’
In Japan, the trigger for an open offer is 33.3 percent, while in Hong Kong it is 30 percent and in Singapore 29.99 percent. In all three, breaching the limit requires an acquirer to make an offer for the entire company.
“The impact of the revisions is not as forceful as originally expected,” Jagannadham Thunuguntla, equity strategist at SMC Global Securities Ltd., wrote in a note to clients yesterday. “Having said that, these revisions will still prove to be game-changers.”
SEBI abolished the practice of paying a so-called non- compete fee to owners of target companies. India had allowed payments of up to 25 percent over the open offer price in order to prevent founders from competing.
“The main objective was to make the rules more minority friendly,” said Manisha Girotra, chief executive officer of UBS AG’s Indian unit in Mumbai. “The no-compete fees can be negotiated. It will be now built into the price. Everyone will get the benefit.”
The regulator also made it mandatory for the board of the target company to recommend or reject any takeover offer. Sinha didn’t say when the new rules would come into effect.
“This would make the deal making environment better,” said Ranu Vohra, chief executive officer at Avendus Capital Pvt. in Mumbai. “It would increase the seriousness and relevance of companies making open offers.”
To contact the reporters on this story: George Smith Alexander in Mumbai galexander11@bloomberg.net; Anto Antony in New Delhi at aantony1@bloomberg.net
To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
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