1. United Bank of India (hereinafter referred to as “the Target Company” or “the Bank”) is a public sector bank, having its registered office at UNITED TOWER, 11, Hemanta Basu Sarani, Kolkata 700001, West Bengal. The shares of the Bank are listed on the Bombay Stock Exchange Limited (“BSE”) and the National Stock Exchange of India Limited (“NSE”).
2. The Target Company filed an application dated November 06, 2013 with the Securities and Exchange Board of India (hereinafter referred to as “the SEBI”), on behalf of its promoter, the Government of India (hereinafter referred to as “the GoI”), under regulation 11(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as “the Takeover Regulations”), seeking exemption for the GoI from the applicability of regulation 3(2) of the Takeover Regulations in respect of its proposed acquisition of 16,83,09,689 shares. The application inter alia stated the following:
(i) The authorised capital of the Bank is Rs. 3,000 crore and the paid-up capital is Rs. 1,174.71 crore, out of which Rs. 374.71 crore is held as equity and Rs. 800 crore as Perpetual Non-Cumulative Preference Shares (“the PNCPS”).
(ii) The GoI is holding 30,81,28,640 shares i.e 82.23% of the equity share capital and 100% of the PNCPS.
(iii) GoI desires that all public sector banks should maintain minimum 8% Tier I Capital to Risk-weighted Assets Ratio (CRAR). As on March 31, 2013, the Bank's Tier I CRAR under Basel II and III was 8.40% and 7.61% respectively and the Total CRAR was 11.66% and 10.58% as per Basel II and III respectively.
(iv) As on September 30, 2013, the Bank's Tier I CRAR as per Basel III norms was 6.18% while the Total CRAR was 9.48%. With probable increase in the risk weighted assets as on March 31, 2014, the Bank is away from reaching the desired 8% Tier I CRAR and requires capital infusion.
(v) The PNCPS are considered to be outside the common equity and are to be treated as part of Additional Tier I Capital as per Basel III norms, which came into effect from April 1, 2013.
(vi) As in every year this year too, the GoI has made a budgetary allocation of Rs. 14,000 crore for infusion of capital into the banks.
(vii) Pursuant to the aforesaid, the GoI through the Ministry of Finance, vide letter dated October 22, 2013, has advised infusion of capital to the tune of Rs. 700 crore in the Target Company as preferential equity in favour of the GoI.
(viii) The entire infusion of capital by GoI is being made to comply with Basel III requirements and there would be no change in control in the management of the Bank.
(ix) As the difference between the post-allotment and pre-allotment shareholding of the GoI in the Bank may be over 5%, the GoI vide letter dated October 31, 2013 has advised the Bank to seek exemption (from SEBI) from the obligation of making an open offer under the Takeover Regulations.
(x) The Board of Directors of the Bank, in their meeting held on November 9, 2013, approved raising of additional equity capital to the extent of Rs. 700 crore by way of issue of equity shares in favour of the GoI on preferential basis subject to the approval of the Reserve Bank of India (“RBI”), the shareholders and other statutory authorities. Extra-Ordinary General Meeting (“EGM”) of the shareholders will be convened shortly to pass the necessary resolution for the proposed issue of the equity shares to the GoI on preferential basis.
(xi) The entire process of raising capital by way of preferential allotment must be completed on or before the end of this financial year in order to improve CRAR as March 31, 2014 factoring the effect of additional capital to be infused by GoI through the preferential issue.
(xii) The relevant date has been taken as October 31, 2013 for ascertaining the issue price to arrive at the quantity of shares to be issued. The issue price is arrived at Rs. 41.59/- per equity share, which is calculated as per regulation 76 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (“the ICDR Regulations”). Based on the issue price and the issue size of Rs. 700 crore, the total number of shares offered to GoI is 16,83,09,689 equity shares. Accordingly, the post issue shareholding of the GoI would be 47,64,38,329 equity shares (i.e 87.74%). The actual price shall be arrived at after finalisation of dates.
(xiii) As the proposed acquisition of shares would increase the shareholding of GoI by more than 5.50% during the financial year 2013–2014, exemption has been sought from the applicability of regulation 3(2) of the Takeover Regulations.
3. Thereafter, vide letters dated November 25, 2013 and November 26, 2013, and e-mail dated November 26, 2013, the Target Company stated that—
(a) An EGM has been convened on December 23, 2013 at 10 a.m for obtaining shareholder's approval for the proposed preferential allotment;
(b) The issue price has been worked out as Rs. 38.88/- per equity share of Rs. 10/- each as per regulation 76(1) of the ICDR Regulations;
(c) The Target Company would be allotting 18,00,41,152 fresh equity shares to the GoI;
(d) The ‘relevant date’ for the proposed issue was on November 22, 2013; and
(e) The allotment of 18,00,41,152 equity shares to the GoI would increase their shareholding in the Target Company from 82.232% to 87.998% resulting in an increase of 5.766%.
4. I have considered the application of the Target Company, the documents attached thereto and other material available on record.
5. The GoI (a shareholder of the Target Company under the category ‘Promoter and Promoter Group’), which is the proposed acquirer, presently holds 30,81,28,640 shares in the Target Company, which constitutes 82.23% of the total number (37,47,06,939 shares) of equity shares. The Target Company has submitted that the GoI desires that all public sector banks should maintain a minimum of 8% Tier I CRAR. It is submitted that the Target Company has not achieved the 8% Tier I CRAR and requires capital infusion in view of the increase in the risk weighted assets as on March 31, 2014.
6. I note from the letter dated October 22, 2013 (letter from the Ministry of Finance, GoI to the Target Company) that the GoI has decided to infuse capital to the tune of Rs. 700 crores in the Target Company by way of preferential allotment of equity in favour of the GoI. The Target Company has submitted that, pursuant to the said decision of the GoI, its Board of Directors, in the meeting held on November 9, 2013, had approved raising of additional equity capital to the extent of Rs. 700 crore through the issue of equity shares in favour of GoI on preferential basis subject to the approval of RBI, the shareholders and other statutory authorities.
7. The details such as the pricing of the shares, the number of shares proposed to be allotted to the GoI, as mentioned in the application, were made on the basis of a tentative ‘relevant date’. Certainty with respect to these figures have been arrived at by the Target Company by fixing the ‘relevant date’ on November 22, 2013 as the EGM is being convened on December 23, 2013 for obtaining the shareholders' approval for the proposed allotment to the GoI. I note from the subsequent correspondence from the Target Company, as mentioned in paragraph 3 above, that the issue price has been fixed at Rs. 38.88/- per equity share of Rs. 10/- each as per regulation 76(1) of the ICDR Regulations, taking into consideration November 22, 2013 as the ‘relevant date’. Accordingly, the Target Company has proposed to allot 18,00,41,152 fresh equity shares to the GoI on a preferential basis. The proposed allotment of 18,00,41,152 equity shares of the Target Company to the GoI would increase the shareholding of the GoI (in the Target Company) from 82.232% to 87.998%. This resultant increase in the shareholding/voting rights of the GoI would be around 5.766%, which would trigger the provisions of regulation 3(2) of the Takeover Regulations. Accordingly, the Target Company on behalf of GoI, has sought exemption from the applicability of the said regulation.
8. The shareholding pattern in the Target Company as mentioned in the application and the shareholding pattern post the proposed preferential allotment to the GoI, is given below in the table:
Shareholding pattern in the Target Company
Category
Before the proposed issue of equity
Post issue of equity through proposed preferential issue to GoI
No. of shares
Percentage
No. of shares
Percentage
Promoter Group (GoI)
30,81,28,640
82.23
48,81,69,792
87.998%
FIs/banks
2,40,81,401
6.43
24,081,401
4.341%
FIIs/NRIs/OCB
19,29,012
0.51
1,929,012
0.347%
Public
4,05,67,886
10.83
40,567,886
7.32%
Total
37,47,06,939
100%
55,47,48,091
100%
9. I note that the infusion of funds by the GoI would enable the Target Company to achieve the 8% Tier I CRAR in accordance with the Basel III guidelines. Higher CRAR represents that a bank or a financial institution has sufficient capital in order to keep it out of financial difficulty and protect the interest of its depositors and in turn the economy. Even after the proposed increase in the shareholding of GoI in the Target Company pursuant to the proposed preferential allotment, the minimum public shareholding as stipulated in rule 19A(3) of the Securities Contracts (Regulation) Rules, 1957, would be maintained and there would be no change in the management control in the Target Company.
10. Considering the proposed allotment of equity to the GoI in the light of the reasons stated by the Target Company and the observations made above, I am of the considered view that this is a fit case to grant exemption under regulation 11 of the Takeover Regulations to the GoI from the obligation to make an open offer under regulation 3(2) of the Takeover Regulations with respect to its proposed increase of shares/voting rights from 82.232% to 87.998%, pursuant to proposed preferential issue and allotment of 18,00,41,152 equity shares to the GoI.
11. In view of the foregoing, I, in exercise of the powers conferred upon me under section 19 of the Securities and Exchange Board of India Act, 1992 read with regulation 11(5) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, hereby grant exemption to the proposed acquirer, the Government of India, from complying with the requirements of regulation 3(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 with respect to its proposed acquisition of 18,00,41,152 shares by way of preferential allotment by the Target Company i.e, United Bank of India, against the infusion of Rs. 700 crores by the GoI, which may increase the shareholding/voting rights of the Government of India in the Target Company from 82.232% to 87.998%. The exemption is granted subject to the following conditions:
(i) The proposed acquisition shall be in accordance with the relevant provisions of the Companies Act, 1956, the Companies Act, 2013, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, the Listing Agreement and all other applicable laws.
(ii) The GoI/Target Company shall ensure compliance with the statements, disclosures and undertakings made in the application.
(iii) The exemption is only limited to the requirements of making open offer under regulation 3(2) of the Takeover Regulations and shall not extend to other obligations (e.g disclosure requirements under Chapter V of the said Takeover Regulations, Listing Agreement or any other law) of the GoI/Target Company.
12. Accordingly, the application dated November 6, 2013 filed by the Government of India through the United Bank Limited, is disposed off.