Much-needed action. SEBI tweaks takeover code to facilitate disinvestment of PSUs

In a fillip to strategic divestments— which had hit rough patch recently, the market regulator SEBI has amended its Takeover Code to facilitate transactions involving change in control of State-owned enterprises. 

Post the latest change in Takeover Code, acquirers would enjoy flexibility in pricing their open offers for minority shareholders and would not be required to calculate the open offer price linked to 60 days volume weighted average market price (VWAMP) prior to the date of public announcement.

Through the latest changes, the earlier requirement of calculating 60 days VWAMP for determination of open offer price in case of disinvestment of PSU Companies, wherein it results in its change in control, has been dispensed with. The amendments to the SEBI (substantial acquisition of shares and takeover) Regulations was notified on Wednesday (November 9), sources said.

EXPERTS’ TAKE

Asish Philip, Partner, Lakshmikumaran and Sridharan Attorneys, said, “It is a positive change for the strategic investors interested in investing in PSUs. This provides financial certainty to strategic investors over volatility in price owing to speculative trading in PSU stocks”.

This amendment was necessitated due to the transparency requirements in a PSU disinvestment. “The said amendment creates a special dispensation for PSUs, providing necessary assistance and a level playing field with private sector. The transparent bidding process will ensure fair pricing to the minority shareholders,” Philip said.

SN Ananthasubramanian, former ICSI President, said, “Given the empirical evidence of substantial delays/suspension of strategic disinvestments, the SEBI’s move was on expected lines. It appears to be an acknowledgement that disinvestment of State enterprises entails protracted processes, multiple approvals and announcements involving disinvestments made from time to time without any fruition could invariably lead to market volatility.”

It maybe recalled that the Board of Securities and Exchange Board of India (SEBI) had in end September this year decided to exempt strategic disinvestment transactions (where control changes either by way of direct acquisition or indirect acquisition) from the norm of ascertaining open offer price based on 60 days VWAMP.

SEBI had then highlighted that strategic disinvestment process of a public sector undertaking (PSU) requires public announcements to be made at different stages (at the time of approval of transactions by Cabinet Committee on Economic Affairs’ (CCEA), expression of interest (EoI) stage, shortlisting of bidders and subsequent request for proposal (RFP) release) unlike transactions relations related to private companies which are made public only upon execution of binding agreements.

As a result, the market price of the PSU company undergoing strategic disinvestment becomes susceptible to such periodic disclosures. 

Considering the unique nature of transaction process involved in a PSU disinvestment spanning over a long period, such a requirement of determination of open offer price under the Takeover Regulations many a time acts as an impediment in fructifying such strategic disinvestment of PSUs, SEBI had then said.

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