'Only banks, financial institutions exempt from open offer in corporate debt restructuring'

Market Regulator SEBI on Friday came out with rules for providing exemption from open offer requirements for corporate debt restructuring, which will now be restricted to scheduled commercial banks and all-India financial institutions.

The decision could help the cash-strapped Jet Airways which is looking for investment from lenders.

The market watchdog met in Delhi on Friday and decided that "such exemptions will not be available for acquisition of shares by persons other than lenders by way of allotment by the target company or purchase from lenders".

Under SEBI's takeover code, any firm acquiring control in a listed company, or when its stake crosses 25 per cent, must make an open offer to its minority investors.

The issue of open offer exemptions made headlines in recent times when the lead lender to Jet Airways -- State Bank of India (SBI)-- sought clarity from SEBI on open offer exemption possibilities in the current ongoing debt restricting of the ailing airline.

The SBI is the lead banker of Jet Airways's lenders' consortium, where the Punjab National Bank (PNB) is also a key lender as well. Jet has a debt of Rs 8,000 crore. 

In this context the SEBI and SBI were said to have discussed if an open offer exemption was possible under the takeover code to save a company in the larger investors' interest. 

Section 11 empowers the SEBI board to allow exemptions if it deems it a fit case in the interest of investors in securities. Section 10 of the SEBI takeover code allows exemption if it is made under Section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985, or any statutory modification or re-enactment.

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The two sections are frequently used to give exemptions to public sector banks and undertakings when the government recapitalises them.

The board which met under Chairman Ajay Tyagi also noted that relevant exemptions, including open offer obligations are available under the SEBI regulations of Issue of Capital and Disclosure Requirements (ICDR) for acquisition while pursuing a resolution plan approved under the IBC. 

This will be related to allotment of shares to lenders pursuant to debt conversion.

Therefore with Friday's board decision, the open offer exemption would not be made available to persons (other than lenders).

The regulator has deleted the word "Competent Authority" in takeover regulations with respect to open offer exemption.

The exemption is now made available only for "scheme of arrangement or reconstruction pursuant to order of a court or tribunal", SEBI said.