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Open offers that have not seen the light of day for one reason or another are currently holding up hundreds of crores of rupees in investors’ funds, chiefly those of minority investors.
A study of eight open offers (see table) shows about Rs 717.91 crore in investor wealth has been held up for four to five years. And there is no end in sight to this wait even now.
Eroding wealth
A total of 87,673 minority investors/shareholders are caught up in these open offers. And as their wait gets longer for a final verdict and the actual open offer fails to kick off, the market price of the shares of these companies keep falling, thus eroding the wealth of the shareholders.
According to market participants, while valuation (offer price) is the bone of contention in many cases, in some cases, the delay is also due to procedural lapses.
Even the market regulator SEBI, which in recent times has vigorously taken on large companies for the protection of investors’ interests, has not been able to adequately put its might behind these open offer cases.
Recently, the Securities Appellate Tribunal, allowed Akshya Infrastructure Private Ltd to withdraw its open offer to the shareholders of Marg Ltd, due to “long lapse of time” in securing SEBI approval. Clearly, the tribunal was unhappy with SEBI for not sorting out the matter in time. The issue has now gone back to court, with SEBI moving the Supreme Court against the tribunal order. Investors meanwhile, continue to lick their wounds.
Time-sensitive issue
Takeovers are time-sensitive issues and have major financial implications for a large number of public shareholders, especially of the minority kind. For instance, in the Akshya Infra case, the tribunal came down hard on SEBI, observing, “In these matters, time is of the essence and it is our considered opinion that the respondent’s (Sebi) silence for months together in this case would tantamount to refusal of the appellant’s (Akshya Infrastructure) offer.”
The Supreme Court has been alive to the needs of the investors, as is evident from various observations the apex court made in several cases related to open offers. These observations include the need for:
i) early hearing of takeover matters, ii) payment of interest if the petitioner/acquirer loses, iii) providing financial particulars on an affidavit in order to protect the interests of the investors and iv) deposit the amount due to the investors’ in Escrow accounts that bear interest, pending final disposal of the matter. In one case, it even disallowed withdrawal of an open offer.
According to Arun Kejriwal of KRIS Securities, in most such cases, companies breached the SEBI norms and open offers will “never happen” in the foreseeable future. Even if SEBI directs them to come out with the open offer, the companies will drag the issue to the higher authorities such as the Securities Appellate Tribunal and the Supreme Court, he added.
Such issues that involve protecting the financial fortunes of many shareholders at one time, are best protected by class action suits. However, that is yet to be implemented in India. Till then, the unfortunate retail investors will continue to suffer, seeing the value of their investments erode.
> badrinarayanan.ks@thehindu.co.in
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