SEBI, Sterlite war intensifies

MUMBAI, July 27: The tussle between the market regulator, the Securities & Exchange Board of India (Sebi) and Sterlite Industries ove...

MUMBAI, July 27: The tussle between the market regulator, the Securities & Exchange Board of India (Sebi) and Sterlite Industries over meeting the obligations of the latter’s public offer to acquire control of Indian Aluminium (Indal) is hotting up with the two parties taking divergent stances on the issue of payment.

While the annual general meeting of Sterlite has decided to reject the issue of optionally convertible preference shares (OCPS) last week, Sebi has asked the company to compensate investors who had responded to the offer.

“Investors who lodged shares with Sterlite will have to be compensated,” said a Sebi official.

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Sebi has already asked Sterlite and its merchant bankers not to withdraw funds from the escrow account (the advance money kept in a bank which would be used for funding the takeover) till the issue is sorted out. The regulator has also called for a report from Sterlite’s merchant banker, Enam Financial Services on shareholders’ reported rejection of the proposal to the issueOCPS for part payment of shares lodged by investors under the offer.

Sebi is likely to confiscate the escrow amount to meet the payment of investors who responded to the Sterlite offer. As per the Sebi rules, the company which is making the takeover offer is liable to make the payment for shares lodged with it, say officials.

It may be recalled that Sterlite had made an open offer for Indal, but Alcan Aluminium of Canada (the major shareholder of Indal) thwarted the attempt and simultaneously increased its share holding in Indal from 35 per cent to 55 per cent. Alcan made a last-minute negotiation with institutions and bought over their stake at Rs 200 per share.

Sterlite and its merchant bankers were peeved at the fact that the Sebi had taken contrary views on the OCPS issue. “The takeover move was scuttled by the delayed and controversial decisions by Sebi. We were not given adequate time and Sebi interpreted the rules in its own ways,” Sterlite sources said.

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In fact, the confusion at the Sebiheadquarters is bound to hit Sterlite’s future plans. Just a day before open offer for Indal closed, the Sebi had issued a press statement saying that Sterlite must take approval from its shareholders for issuing preference shares. Sterlite was planning to fund the acquisition with the preference share issue.

Thanks to the Sebi’s late evening clarification, Sterlite lost the takeover bid to Alcan. However, even as shareholders refused permission to Sterlite from issuing preference shares, Sebi clarified yet again and contradicted its earlier stand by saying Sterlite need not take permission from its shareholders for the said issue.

The contradictory statements from the Sebi has confused Sterlite and other corporate watchers whose funds are now blocked. Sterlite sources say that it will have no other option but to move the courts in order to get justice. The Indal takeover drama not only brought out the weaknesses in the takeover code but also exposed Sebi’s inability to interpret the norms in time.