MUMBAI: Will markets regulator SEBI exempt Life Insurance Corporation of India (LIC) from making the mandatory open offer to IDBI shareholders? There’s no official word yet, but if history is any precedent, that probability appears high.LIC, which currently has 8 per cent stake in IDBI Bank, may acquire up to 43 per cent stake, provided it has the backing of RBI and the Cabinet.
As per SEBI’s takeover norms, an open offer is mandatory when an entity acquires 25 per cent or more in a listed company. The acquiring entity has to make an offer to buy an additional 26 per cent stake in the company from public shareholders. But that may not be the case with IDBI, whose public shareholders are as little as 6 per cent. “LIC will go through the process and make the open offer if necessary, but it is not very material,” said Subhash Chandra Garg, Secretary, Department of Economic Affairs, adding, “IDBI needs capital, so they would issue preferential shares. The other way is that they can buy from the government, but that doesn’t provide capital to IDBI Bank. So it is the preferred way to do it.”
According to Shriram Subramanian, Founder, InGovern Research Service, proxy advisory firm, SEBI did make similar exemptions in the past and sees no reason why the regulator will not do so for LIC. “Just last year, SEBI exempted the buyer from making an open offer in the ONGC-HPCL deal. It’s a possibility in LIC-IDBI case too,” he added. SEBI also makes open offer exemptions to promoter entities, in case of acquisitions pursuant to inter-se transfer of shares among qualifying persons being promoters. This is subject to the conditions that such entities are named as promoters in the shareholding pattern filed by the target company for not less than three years prior to the proposed acquisition.
Last June, it also relaxed norms exempting buyers of shares in distressed companies from making an open offer even if the purchase triggers like an event under the takeover code. Meanwhile, Karthik Srinivasan of ICRA said gross bad loans may peak during H1FY18 and FY19 and IDBI may need to provide for fresh slippages, ageing of NPAs as well as haircuts on exposures under the IBC proceedings. “ICRA expects the bank’s internal capital generation to remain under pressure with credit provisions far exceeding core operating profits during FY19,” he said in a note last month.
What gives hope for LIC
As per SEBI’s takeover norms, an open offer is mandatory when an entity acquires 25 per cent or more in a listed company
It makes open offer exemptions to promoter entities, in case of acquisitions pursuant to inter-se transfer of shares among qualifying persons being promoters
Last year, the buyer was exempted from open offer in ONGC-HPCL deal