Creeping acquisition limits raised

Pursuant to its notification dated 30 October, the Securities and Exchange Board of India (SEBI) has made amendments to the creeping acquisition limits available to the promoters of listed companies. Until recently a person holding a 15% to 55% stake in a listed company could acquire additional shares or voting rights up to 5% per financial year without having to make a mandatory open offer. Any acquisition of further shares beyond 55% required the acquirer to make an open offer.

The amendment provides an opportunity to promoters holding more than 55% but less than 75%, to acquire a further 5% stake in a company without making an open offer to public shareholders; 75% will be read as 90% for companies which have a minimum public shareholding limit of 10% pursuant to the first proviso of regulation 11(2), which is applicable to the entire sub-regulation. The opportunity to acquire 5% is not available on an incremental basis every financial year, but is a one-shot opportunity to further consolidate a 5% stake in a company.

The amendment also specifies that the 5% increase in shareholding by the promoter beyond 55% will only be possible through open market purchases, which surprisingly, excludes bulk deals. Acquisitions through a block deal or through preferential allotment have been expressly ruled out.

Akila Agrawal is a partner at Amarchand & Mangaldas & Suresh A Shroff & Co.