Sebi proposes 10% interest in case of delay in open offer

The Securities and Exchange Board of India (Sebi) has proposed that in case of delay of an open offer, the revised offer price may be calculated after adding 10 per cent interest rate.

According to market participants, the regulator has made the proposal in light of minority shareholders, along with Sebi, moving the Supreme Court, seeking implementation of an open offer by IHH for Fortis Healthcare's takeover.

In its discussion paper, the regulator observed that there are instances where an open offer can get delayed on account of valuation disputes, inter-party disputes, investor com

plaints, and delay in making payment by acquirer upon tendering of shares. The market watchdog acknowledged the existing takeover regulations do not envisage delay in open offers other than on account of statutory approvals.

While in some cases, the acquirer voluntarily agrees to compensate shareholders by paying interest for delay, minority shareholders are not likely to get compensated for all delays as the interest rate is not explicitly stated in regulations.

The regulator also proposed tightening of regulations as currently there is no explicit requirement to deposit 100 per cent of the open offer consideration in an escrow account for indirect acquisition.

Sebi also proposed making relevant amendments to the regulations to clarify that bulk and block deals can be used to complete acquisition of shares in the target firm. It observed the bulk and block deal route can be used as it is well-regulated and relatively transparent than off-market transactions.