SEBI curbs Subra Holding's plan to buy Silverline shares

Monday, August 25 1997

SEBI curbs Subra Holding's plan to buy Silverline shares

OUR MARKET BUREAU

MUMBAI, Aug 24: SEBI has barred Subra Holdings Inc, USA, from acquiring the shares in Silverline Industries Ltd (SIL) through the inter se transfer of shares belonging to one of the main promoters of SIL, who also is the main promoter of the US company.

Subra Holdings had applied to SEBI on April 28, 1997, for exemptions under regulation 4(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. The SEBI order rejecting the application was issued on July 29.

This means that Subra will have to make an open offer for at least 20 per cent of Silverline shares if it wants to buy the latter's shares. This is the first case rejected by SEBI for exemption from making a public offer under the new takeover law. Four other cases seeking exemptions have been cleared earlier -- those involving Abbott Labs, Malwa Cotton, Lupharma and Chowgule & Co.

The promoter involved is Ravi Subramanian, an NRI, who is one of the main shareholders of both Subra Holdings Inc, USA, and SIL. Subsequent to the rejection of his application, Subramanian has submitted to SEBI that he is agreeable to making a tender offer for the acquisition of SIL shares.

SIL closed at Rs 27 and Rs 27.75 on the Mumbai and National stock exchanges respectively on August 21. If the public offer is made as agreed by Subramanian, it could result in a firming up of the SIL share prices. Subra Holdings Inc, at the time of application, did not hold any shares in SIL.

However, it sought to acquire shares held by Subramanian and other promoters in SIL through an inter se transfer. Subramanian holds 64.06 per cent of the common stock (or 68,33,333 shares) of Subra Haoldings. His holdings in SIL could not be ascertained at the point of writing.

While rejecting the application, the SEBI order made the following points:

The word `company' has not been defined in the takeover regulations. But if one were to take the definition of `company' in accordance with the provisions of the Companies Act, 1956, it does not include foreign companies.

In the certificate dated April 25, 1997, issued by Certified Public Accountants, it is inter alia mentioned that Ravi Subramanian for himself and as agent for other promoters is holding 68,33,333 shares in Subra Holdings. There is no information available to consider as to who the `other promoters' mentioned in the said certificate are and how they are related to the formation of SIL. There is nothing to ensure that through the mechanism intended to be adopted by Subra Holdngs, the control of management will not pass to a third person.

The Subra application for exemption was made under regulation 3(1)(l) to enable the inter se transfer of equity shares of SIL held by its promoters to Subra Holdings so as to help the latter to consolidate its holding in SIL.

Takeover regulation 3(1)(l) refers to ``such other cases as may be exempted from the applicability of Chapter III by the SEBI under regulation 4.'' Chapter III of the regulations pertains to ``substantial acquisition of shares or voting rights in and acquisition of control over a listed company.''

Regulation 10 of Chapter III requires that ``no acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him) entitle such acquirer to exercise 10 per cent or more of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the regulations.''

Subramanian had desired to acquire controlling interest in SIL, while wanting to avoid the public announcement for the same.

The application for exemption was made primarily on the ground that the word `company' (as defined in regulation 2(h)(4) of the takeover regulations) would also include foreign companies/corporate bodies and not just Indian promoters and that there is strict compliance of the provisions of this regulation.

Subramanian also stated that Subra Holdings would fall within the definition of `group companies' as defined under the MRTP Act and referred to in regulation 3(e)(i) of the takeover regulations.

Regulation 3(e)(i) refers to inter se transfer of shares amongst group companies, coming within the definition of group as defined in the MRTP Act, 1969.

An undertaking was also given that at least the majority of common stock in Subra could be held for a period of three years by Subramanian, the main promoter.