Market regulator, SEBI, has exempted the Central Government from making an open offer under the takeover code for the latter’s proposed stake hike in IFCI.

The stock closed 2.43 per cent lower at Rs 32.1 on the BSE with 35.58 lakh shares changing hands.

Last month, the Centre had decided to exercise an option to convert debentures worth Rs 923 crore into equity shares at par. The conversion would lead to Government stake going up from a meagre 0.0000011 per cent to 55.57 per cent, resulting in it acquiring control of IFCI.

On August 29, the Finance Ministry filed an application with the Securities Exchange Board of India seeking exemption from complying with the open offer requirements stipulated under the takeover code.

At present, IFCI has no single identifiable promoter group. Life Insurance Corporation is its single largest shareholder.

As per the takeover code, any stake buy of 25 per cent or more requires the acquirer to make an open offer for a further 26 per cent stake from public shareholders.

In an order dated September 24, SEBI whole-time member, Rajeev Kumar Agarwal, has granted exemption to the Government from making an open offer.

If SEBI had not granted specific exemption to the Government, the Centre would have been obliged to make an open offer to acquire 26 per cent additional equity shares in IFCI from its public shareholders.

Not to other obligations

Agarwal has, however, noted that the exemption will not extend to other obligations of the Government, and IFCI under any other law (e.g disclosure requirements under Chapter V of the takeover code, the listing agreement, etc).

He also highlighted that the Government’s proposal for conversion of debentures into equity was in consonance with its declared policy on IFCI.

It was always the intent of the Centre to make IFCI a Government company and the financial institution was converted into a public limited company with this plan, the order noted.

Agarwal also agreed with the observations of the panel of experts (under SEBI takeover code) that the conversion of such debts into equity would provide more accountability and would stand as additional safeguard to the investment of such public funds.

These observations also address the issues raised by the target company (IFCI) with respect to the interests of the investors, he said.

(This article was published on September 25, 2012)
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