SEBI's takeover code raises open offer trigger to 25%

Our Bureau Mumbai | Updated on March 12, 2018

sebibuilding   -  Business Line


Sets minimum open offer size at 26%; scraps non-compete fee provision

Stock market regulator the Securities and Exchange Board of India (SEBI) has raised the initial trigger threshold for an open offer, from the existing 15 per cent to 25 per cent, accepting in the process most of the recommendations of the Takeover Regulation Advisory Committee (TRAC).

This would give Indian companies considerable leeway in raising funds (say, through private equity placements), without triggering open offer conditions, said analysts.

The SEBI Board also decided to increase the open offer size from 20 per cent to 26 per cent; the minimum stake that an acquirer will obtain in a target company after the open offer would now be 51 per cent.

The non-compete fee provision has been done away with and shareholders (majority and minority) shall be allowed to exit at the same price.

The TRAC committee had recommended a minimum open offer for 100 per cent of the target company's shares. This had come in for a lot of criticism from Indian industry, their main argument being this would make it difficult for Indian acquirers to compete with their foreign counterparts.

“The decision on the minimum offer size of 26 per cent was unanimous as we found that the average promoter holding in Indian companies was 51 per cent,” said Mr U K. Sinha, Chairman, SEBI, after the board meeting in what was his first press briefing as SEBI chief. An open offer would take this higher than 75 per cent, which fits in well with the 25 per cent minimum public holding recommended for an Indian company, he said.

“The recommendation regarding auto-delisting of shares pursuant to the open offer acquisition of shares has not been accepted,” Mr Sinha added.

Auto de-listing has not been accepted considering the fact that there would be no level playing field between Indian and foreign acquirers as the latter has access to sources of acquisition financing not available in India, giving them an unfair advantage, said the SEBI Chairman.

In the case of competitive offers, the successful bidder can acquire shares of other bidders after the offer period without attracting open offer obligations. Voluntary offers subject to certain conditions have also been allowed.

“A recommendation on the offer by the Board of the target company has been made mandatory while the definition of control has not been changed,” said a news release from SEBI.

SEBI has mandated that promoters and persons part of the promoter group of a company should disclose their initial shareholding when they become a part of the group, and also in case their holdings change by Rs 5 lakh in value or 25,000 shares in number or one per cent in stake, whichever is lower.

SEBI has also asked merchant bankers to maintain records and documents pertaining to due diligence exercised before and after an initial public offer (IPO), takeover, buyback or de-listing that they handle and these would be subject to SEBI audit.

Net-worth requirements of registrars and transfer agents (RTAs) have also been increased to Rs 50 lakh for Category I RTAs and Rs 25 lakh for Category II RTAs. RTAs have been allowed a time period of three years to increase their net-worth.


SEBI has approved a proposal to open three new local offices at Lucknow, Guwahati and Hyderabad in the first phase. SEBI's head office in Mumbai would continue to deal with policy and important operational issues.

“We are going to launch an investor education/awareness programme very soon,” said Mr. Sinha. A single signature will replace 50-odd signatures that are currently required for opening a trading account.

Published on July 28, 2011

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