Other Procedures
Regulation 18. Other Procedures
18(1).
When the acquirer prepares a draft letter of offer:
This draft is filed with the Securities and Exchange Board of India under regulation 16(1).
At the same time (simultaneously) , the acquirer must send a copy of this draft.
The copy must be sent to:
The target company (at its registered office address).
All stock exchanges where the target company’s shares are listed.
So , filing with SEBI and sending copies to the company and stock exchanges must happen at the same time.
18(2).
The letter of offer is prepared for shareholders.
It must be sent to shareholders whose names appear in the register of members as on the identified date.
The timing for dispatch depends on SEBI’s response..
If the Securities and Exchange Board of India gives comments:
Then the dispatch within 7 working days from receipt of comments.
If SEBI gives no comments: dispatch within 7 working days from expiry of the specified period under regulation 16(4).
So , shareholders must receive the letter of offer within 7 working days, either after SEBI comments or after the comment period ends
Explanation:
(i).
The letter of offer can be sent electronically.
This must follow the provisions of the Companies Act, 2013.
(ii).
If any shareholder requests a physical copy then the company must provide it.
(iii).
This arrangement (electronic + physical on request) must be clearly disclosed in the letter of offer.
So , electronic dispatch is allowed, but shareholders retain the right to get a physical copy on request, and this must be transparently disclosed
Exception for Dispatch of Letter of Offer to Shareholders in Foreign Jurisdictions
The acquirer has to send the letter of offer to all shareholders.
But a special exception is provided for foreign jurisdictions.
If sending the letter of offer to a particular country may expose:
The acquirer, or the target company to serious legal risks (civil, regulatory, or criminal).
And if shareholders in that country hold less than 5% of the voting rights of the target company.
Then the acquirer is allowed to not send (refrain from dispatching) the letter of offer to that jurisdiction.
This applies when sending the letter without major modifications would create risk.
So , the acquirer can skip sending the offer in risky foreign jurisdictions, but only if those shareholders hold less than 5% voting power.
Right of All Shareholders to Participate in the Open Offer Irrespective of Identified Date or Receipt of Letter of Offer
The open offer is made to shareholders of the target company.
Normally, the letter of offer is sent to shareholders on the identified date.
But this provision expands the right to participate.
Even if a person:
did not hold shares on the identified date, or
did not receive the letter of offer.
Such person is still entitled to participate.
He can tender his shares in the open offer.
So , eligibility to tender shares is broad—receipt of letter or holding on identified date is not mandatory.
18(3).
The acquirer dispatches the letter of offer to shareholders as per 18(2).
Simultaneously with this dispatch under 18(2).
The acquirer must also send the letter of offer to the custodian of shares.
This applies where there are depository receipts of the target company.
The custodian holds the underlying shares for such depository receipts.
So , along with dispatch under 18(2), the letter must also be sent to the custodian of DR shares at the same time.
Understanding Depository Receipts
Depository receipts are financial instruments that represent shares of a company traded in a foreign country.
They are issued by a depository bank against underlying shares held with a custodian in the home country.
The actual shares remain in the home country while the receipts are traded abroad.
Holders of depository receipts receive economic benefits such as dividends and price appreciation.
Depository receipt holders do not directly own the underlying shares.
They enable investors to invest in foreign companies without directly dealing in foreign markets.
Depository receipts are traded on foreign stock exchanges in the same manner as regular shares.
Common types of depository receipts include American Depository Receipt and Global Depository Receipt.
Each depository receipt represents one or more underlying equity shares of the company.
A custodian holds the underlying shares on behalf of the depository bank for the benefit of the receipt holders.
Example:
An Indian company, say Infosys Ltd., wants to raise investment from the United States without directly listing its shares there.
Infosys deposits a large number of its equity shares with a custodian bank in India.
A US-based depository bank then issues American Depository Receipt to investors in the US against those shares.
Suppose 1 ADR represents 2 equity shares of Infosys.
If Infosys deposits 10,00,000 shares, the depository bank can issue 5,00,000 ADRs in the US market.
US investors purchase these ADRs on a US stock exchange just like they would buy shares of a US company.
When Infosys declares a dividend in India, the dividend is first paid on the underlying shares to the custodian.
The custodian transfers this to the depository bank, which then distributes the equivalent dividend (in US dollars) to ADR holders.
If an investor wants, they can convert ADRs into actual shares (subject to process and regulations), and vice versa.
Throughout this structure, the actual shares remain in India with the custodian, while investors abroad trade only the ADRs.
Depository Bank
A depository bank is a foreign bank that issues depository receipts such as American Depository Receipt and Global Depository Receipt.
It creates DRs against underlying shares of a company.
It facilitates trading of these DRs in foreign markets.
It maintains records of DR holders.
It distributes dividends and other benefits to DR holders in foreign currency.
It acts as an intermediary between the foreign investors and the company.
It may handle conversion of DRs into underlying shares and vice versa.
Custodian Bank
A custodian bank is located in the home country of the company.
It holds the actual underlying shares on behalf of the depository bank.
It safeguards and maintains custody of these shares.
It receives dividends and corporate benefits from the company.
It transfers such benefits to the depository bank.
It ensures that the shares backing the DRs are properly held and accounted for.
It acts as the local agent of the depository bank in the home country.
18(4).
An acquirer is allowed to make upward revisions even when there is a competing offer.
These revisions can be in the offer price, and the number of shares proposed to be acquired.
However, this is subject to other provisions of the regulations.
There is a time limit.
Revisions can be made any time before the last one working day prior to the commencement of the tendering period.
After this point no further upward revision is allowed.
So , the acquirer can improve the offer (price or quantity), but only up to one working day before the tendering period begins.
18(5).
The acquirer revises the open offer either by increasing the offer price, or increasing the number of shares (offer size)
When such revision is made, certain obligations arise:
(a)
The acquirer must increase the escrow amount accordingly.
This increase must match the revised offer (price/size).
The increase must be made before making the revision.
The increase must be made as per regulation 17.
Whenever the offer improves, the escrow must also be increased first, ensuring full financial backing for the revised offer.
When the acquirer revises the open offer (price or size), further steps must be followed.
(b)
The acquirer must publish an announcement of the revision.
This announcement must be made in all the same newspapers where the detailed public statement was originally published.
(c)
At the same time as making this announcement the acquirer must inform the following:
The Securities and Exchange Board of India.
All stock exchanges where the target company’s shares are listed.
The target company (at its registered office).
18(6).
The open offer is ongoing (offer period is running):
During this period, the acquirer or persons acting in concert may buy shares of the target company.
Every such acquisition must be disclosed.
The disclosure must be made in the prescribed form.
It must be sent to:
All stock exchanges where the shares are listed.
The target company (at its registered office).
It must be sent within 24 hours of the acquisition.
After receiving this information the stock exchanges must immediately make it public.
All acquisitions during the offer period must be quickly disclosed (within 24 hours) and made public for transparency.
Restricted Trading Window Around Tendering Period (No-Trade Rule)
The acquirer and persons acting in concert can normally trade in shares during the offer period.
But there is a restriction period: The restriction starts 3 working days before the tendering period begins.
The restriction continues until the end of the tendering period.
During this entire period:
They cannot acquire shares, and
They cannot sell shares of the target company.
There is a strict no-trading window around the tendering period to ensure fairness and prevent manipulation
18(6A).
When an open offer is made by the acquirer:
Shareholders are given the option to tender (offer) their shares.
The acquirer must ensure that this process is smooth and accessible..
The tendering of shares must be done through the stock exchange mechanism.
The process must follow the method specified by the Securities and Exchange Board of India.
The acquirer must also ensure proper settlement of shares and payment through this system.
So , essentially the entire tendering and settlement process must be done through stock exchanges as per SEBI rules for transparency and efficiency.
18(7).
Before the tendering period starts, the acquirer must make a public announcement (advertisement).
It has to be made 1 working day before the commencement of the tendering period.
The advertisement must be in the prescribed format
It must include the following details:
The schedule of activities for the open offer.
The status of statutory and other approvals whether required for the acquisition or the open offer.
Details of any unfulfilled conditions and their current status.
The procedure for tendering shares by shareholders.
Any other material information as specified.
So , just before tendering begins, a detailed public update must be given so shareholders are fully informed about timelines, approvals, and how to participate.
Procedure to publish Advertisement
When the acquirer issues an advertisement before the tendering period it must be published and communicated.
(a)
The advertisement must be published in all the same newspapers where the detailed public statement was earlier published.
(b)
At the same time (simultaneously), the advertisement must be sent to:
The Securities and Exchange Board of India.
All stock exchanges where the target company’s shares are listed.
The target company (at its registered office).
So , the advertisement must be widely published and simultaneously communicated to regulators and the company for transparency.
18(8).
The tendering period is the time when shareholders can submit their shares.
It begins after receiving comments from the Securities and Exchange Board of India under regulation 16(4).
The tendering period t must begin within 12 working days from the date of receipt of SEBI’s comments.
Once it starts, it remains open for 10 working days.
So , tendering starts within 12 working days after SEBI comments and stays open for 10 working days.
18(9).
Shareholders tender their shares in the open offer.
Once they submit (accept) the offer the acceptance becomes binding.
During the tendering period they cannot withdraw their tendered shares.
There is no option to change their decision during this period.
So , once shares are tendered, the decision is final during the tendering period.
18(10).
The tendering period ends (last date arrives) after 10 days.
After this, the acquirer has a strict timeline to complete the process.
The process has to be completed within 10 working days from the last date of the tendering period.
Within this period, the acquirer must:
Complete all requirements under the regulations.
Comply with other applicable laws.
This includes making payment of consideration to shareholders who accepted the open offer.
So , after tendering closes, everything (including payment) must be completed within 10 working days.
18(11).
The acquirer needs certain statutory approvals to complete the open offer.
It is the acquirer’s responsibility to obtain these approvals.
The acquirer must actively pursue and follow up on all required approvals.
This must be done:
Without default.
Without neglect.
Without delay.
The acquirer must normally pay shareholders within the prescribed time.
Sometimes, payment may be delayed due to non-receipt of statutory approvals.
In such cases, the Securities and Exchange Board of India can step in.
SEBI will check whether:
The delay was not due to willful default, failure, or neglect, and
The acquirer had diligently pursued approvals.
If satisfied, SEBI may grant an extension of time for making payment.
However, this comes with a condition: The acquirer must pay interest to shareholders for the dela at a rate specified by SEBI.
Delay due to genuine approval issues may be allowed, but shareholders must be compensated with interest.
Selective Payment to Shareholders Pending Statutory Approvals
Sometimes, statutory approvals are required only for some shareholders, not all.
This creates a situation where payment cannot be made uniformly.
In such cases, the acquirer is given an option
The acquirer may:
Go ahead and make payment to those shareholders for whom no statutory approvals are required.
This allows partial completion of the open offer.
It avoids unnecessary delay for shareholders who are not affected by approval issues.
So , payment can be made selectively to eligible shareholders, even if approvals are pending for others.
18(11A).
In addition to 18(11) The acquirer must pay shareholders within the prescribed time.
If the acquirer fails to make payment on time then a consequence follows automatically.
The acquirer must pay interest for the delay.
This interest is payable to all shareholders whose shares have been accepted in the open offer.
The Rate of interest is 10% per annum.
So , any delay in payment leads to mandatory interest at 10% p.a. for affected shareholders.
Exception:
Normally, if payment is delayed, the acquirer must pay interest (10% p.a.).
But this proviso creates an exception.
If the delay is not due to any act or fault of the acquirer, or caused by circumstances beyond the acquirer’s control then:
The Securities and Exchange Board of India can step in and grant a waiver of interest.
So , interest for delay is mandatory, unless SEBI is satisfied that the delay was not the acquirer’s fault.
Interest Payment Does Not Bar Further SEBI Action
The acquirer may be required to pay interest for delay.
But paying interest does not close the matter.
The Securities and Exchange Board of India can still take further action.
Such action can be taken under regulation 32, or under the Act.
So, interest is only a compensation, not a penalty substitute.
So , even after paying interest, the acquirer may still face regulatory action by SEBI.
18(12).
After the offer period is completed, the acquirer must make a public disclosure
(a)
The acquirer must issue a post-offer advertisement.
This must be issued within 5 working days after the offer period.
The advertisement must include details such as:
Total number of shares tendered.
Number of shares accepted.
Date of payment of consideration.
(b)
The advertisement must be properly published and communicated.
(i)
It must be published in all the same newspapers where the detailed public statement was earlier published.
(ii)
At the same time, it must be sent to:
The Securities and Exchange Board of India.
All stock exchanges where the shares are listed.
The target company (at its registered office).
After the offer ends, a detailed public update must be issued within 5 days and widely communicated for transparency.
