Informal Guidance issued in case of Kamath Hotels (India) Ltd (Target Company)

SEBI has released informal guidance to Vishal Amusements Limited (VAL) under the Informal Guidance Scheme read with SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SEBI (SAST) Regulations 2011) whereby due to scheme of arrangement, VAL was going to get shares worth 21.71% of Kamath Hotels (India) Ltd. (Target Company)

Facts of the case are as follows:

·         The Vishal Amusement Limited (VAL), unlisted public company, is one of the promoter group Company of Kamath Hotels (India) Limited (Target Company) ().

·         Target company has total 10 promoter entities including VAL

·         A scheme of merger is proposed between the VAL (Vishal Amusements Limited) (Transferee Company) and other 9 promoter entities (transferor companies).

·         Total shareholding of 9 promoter entities (transferor companies) in the target company is 21.71% and that of the VAL is 1.10%

·         After the merger between transferor and transferee companies, shareholding of VAL (transferee company) in the target company will increase to 22.81%

·         Overall promoter shareholding in the target company will remain unchanged

VAL raised query to SEBI seeking informal guidance whether the aforesaid transaction falls under the exempted category as mentioned under Regulation 10 of the Takeover Code and also whether the said transaction will attract disclosure under Regulation 29(1) or (2) and 10(5), (6) and (7) of the Takeover Code

Regulation 10(1)(a)(ii) and 10(1)(d)(iii) of SEBI (SAST) Regulations, 2011 deals with exemption from making an  open offer upon acquisition

Regulation 10(1)(a)(ii) of SAST Regulations, 2011 states that:

10. (1) The following acquisitions shall be exempt from the obligation to make an open offer under regulation 3 and regulation 4 subject to fulfilment of the conditions stipulated therefor,—

(a) acquisition pursuant to inter se transfer of shares amongst qualifying persons, being,—

(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

Regulation 10(1)(d)(iii) of SAST Regulations, 2011 states that:

10(1) The following acquisitions shall be exempt from the obligation to make an open offer under regulation 3 and regulation 4 subject to fulfilment of the conditions stipulated therefor,—

(d) Acquisition pursuant to a scheme,—

(iii) of arrangement not directly involving the target company as a transferor company or as a  transferee company, or reconstruction not involving the target company’s undertaking, including amalgamation, merger or demerger, pursuant to an order of a court or a competent authority under any law or regulation, Indian or foreign, subject to,—

(A)             the component of cash and cash equivalents in the consideration paid being  less than twenty-five per cent of the consideration paid under the scheme; and

(B)              where after implementation of the scheme of arrangement, persons directly or indirectly holding at least thirty-three per cent of the voting rights in the combined entity are the same as the persons who held the entire voting rights before the implementation of the scheme.

SEBI stated that the proposed acquisition would not qualify for exemption under Regulation 10(1)(a)(ii) but will qualify for exemption under Regulation 10(1)(d)(iii) of SAST Regulations, 2011 subject to approval of the scheme by the court or any competent authority.

SEBI further stated that the acquirer (VAL) will have to make further disclosure under Regulation 10(6) i.e. filing of report with the stock exchange where the shares of Target Company are listed within 4 days from the date of acquisition and under Regulation 10(7) i.e. filing of report giving all the details about acquisition to SEBI within 21 days from the date of acquisition.

SEBI also stated that promoter group will have to make disclosure under Regulation 29(2) and 29(3) i.e. disclosure of the number of shares and voting rights held in the target company and change in shareholding or voting rights within 2 days from the date of receipt of intimation of allotment of shares to every stock exchange where the shares of the target company are listed and to the target company at its registered office.