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M. Ramesh

Under the revised takeover guidelines, if in a company the promoters hold a 55 per cent stake, they cannot raise their holding either through a preferential offer or a creeping acquisition.

Chennai , Oct. 1

THE revised takeover guidelines of SEBI have forced the Murugappa group to drop the proposal to make a preferential offer of shares in Cholamandalam Investment and Finance Company to DBS Bank of Singapore.

The Murugappa group has a 55 per cent stake in the non-banking financial company, while the rest is with the public. DBS Bank and the Murugappa group had decided to become equal partners in the NBFC, which was to be named Cholamandalam DBS Finance Ltd.

`Equal partner': The acquisition of an `equal partner' status was to be done through three routes — buying the shares from another Murugappa group company Tube Investments of India, an open offer to the public and a preferential offer of shares to DBS.

The scheme had envisaged that DBS would acquire a 20 per cent stake through the open offer. That would bring down the public holding to 25 per cent — enough for the company to stay listed — and raise the promoter's holding to 75 per cent. To be equal partners, the Murugappa group and DBS would then need to have 37.5 per cent each. It was assumed that DBS would buy a 20 per cent stake from the public, 15 per cent from Tube Investments and the balance 2.5 per cent through a preferential offer of shares.

Revised guideline: However, under the revised takeover guidelines, if in a company, the promoters hold a 55 per cent stake, they cannot raise their holding either through a preferential offer or a creeping acquisition. The revised guidelines, issued in January, brought down the cut-off stake from 75 per cent earlier to 55 per cent.

In Cholamandalam Investment, the promoters already hold a 55 per cent stake. Therefore, there is no room for a preferential issue — of course, counting that DBS Bank is also a promoter of Cholamandalam Investment. But then, is DBS Bank, which does not have a single share in Cholamandalam today, a promoter?

Officials of the Murugappa brought this contention to SEBI, which, according to the officials, agreed that there was some merit in the argument, but said it would first consult its legal department.

"However, in the interests of time, we have decided to drop the preferential offer," Mr M. Anandan, Managing Director, Cholamandalam Investment, told Business Line on Saturday.

Alternative: He said that the proposal to get DBS on board as an equal partner was not dependent on the preferential offer. Tube Investments could further sell its stake in Cholamandalam to DBS. TI has its board approval for selling up to a 25 per cent stake in Cholamandalam.

However, there is one implication of the move to drop the preferential offer. It was believed that Cholamandalam Investment would get a capital infusion of Rs 45 crore through the preferential offer. That is not going to happen.

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