MUMBAI, OCT 24: Close on the heels of Prime Minister's announcement of greater freedom for the corporate sector under the takeover regulations, the Securities and Exchange Board of India (SEBI) on Saturday decided to increase the creeping acquisition limit of promoters to five per cent from two per cent and the threshold limit for public offers to 15 per cent from 10 per cent.The market regulator is also finalising a set of stringent guidelines for buy-back of shares by corporates. SEBI has decided to amend sub-regulation (1) and (2) of regulation 11 to provide for hiking the creeping acquisition to five per cent for all persons holding above 15 % but below 75 % of the equity capital. This means acquisition of equity shares by promoters beyond the 5% limit in their companies will only lead to a mandatory open public offer in terms of the regulations, SEBI said.In a statement issued shortly the Prime Minister's speech at a FICCI meeting in New Delhi, SEBI said having enhanced the creeping acquisitionlimit, the threshold limit of 10 per cent appeared to be too low and hence revised it upwards to 15 per cent. The SEBI decisions are based on the recommendations of the reconstituted Bhagwati Committee.Following the hike in threshold limit, a person needs to make a public offer only if his share acquisition goes above 15 per cent. The corporate sector has been demanding a hike in creeping acquisition limit and threshold limit to shore up the existing stake of promoters and counter takeover threats. The hike will creeping limit will allow promoters to buy up to 5 per cent of the equity capital and increase their stake.Moreover, to ensure stability and finality in the public offer process, SEBI has decided to suitably amend regulations so as to permit acquisitions, through negotiations or otherwise, during the offer period only up to the date of the last revision permitted, which is seven working days prior to the date of closure of the offer.The reconstituted Bhagwati Committee had considered theprovisions of SEBI (substantial acquisitions of shares and takeovers) Regulations, 1997, relating to consolidation of holdings, threshold limit and acquisitions during the offer period, with a view to examine if these aspects require any amendments. The committee after detailed discussions had decided that the creeping acquisition limit should be increased to five per cent, which should be applicable even to persons holding above 51 per cent but below 75 per cent. The committee had further decided that upon acquiring two per cent, disclosures should be made to the stock exchanges.Regarding share buy-back, SEBI officials said that the guidelines expected to be ready within a fortnight will insist on a company taking approval from its shareholders and is likely to set a limit of 20 per cent below which the floating stock of a company must not go post-buy-back. Another issue being considered by SEBI is that of putting in place a certain price band within which a corporate could make its offer forbuy-back.SEBI will not go into setting the price band. Instead it may prescribe a formula on the lines of the one prevalent for preference issues or put the onus on fixing the price band on the shareholders.SEBI is expected to study the models prevalent in countries like the USA and Australia to ensure that there is "transparency, adequate corporate governance and no insider trading" when a company make an offer to buy-back its shares. The regulator is also likely to insist that a buy-back offer does not come shortly before or after a public or rights issue. The other issue which would need to be tackled is that of a company attracting the takeover code in the event of buying back more than 15 per cent (earlier 10 per cent) of the equity. Dhanuka panel has already suggested that buy-back should be restricted to "shares" only and a company should not be allowed to utilise proceeds of "prior issue" for purpose of buy-back.
