LIC Maybe A Lifesaver For IDBI But SEBI Should Not Make Exceptions To Its Regulations
The regulations state that any acquisition of shares that broaches the 25% shareholding limit in a listed company automatically triggers an open offer for a minimum of 26% additional shares. Exemptions to these regulations are available in some very stringently laid out conditions that rightly protect the interests of a minority shareholder in shareholding change scenarios that result in a change of control. In the past, SEBI has been fairly categorical in adhering to and reiterating the stringency of the exemption conditions, albeit there may have been cases which some may argue have been borderline.
In the current case, the government, which is the transacting seller in the main transaction has stated that unlike its regular business, this transaction is not an investment, but an acquisition. The justification has been grounded in the proposition that LIC has been keen on starting its own bank, and this transaction offers them an opportunity to fulfill this goal. It has also stated that the ultimate call on the transaction will be taken by the individual boards.
Therefore, it makes two points clear: first, this is an acquisition of a banking business by LIC to fulfill a stated strategic goal; and two, both these entities are independently taking the decision even though the government happens to be the primary stakeholder in both. Thus, ambiguity, if any, in relation to the waiver conditions has been put to rest. Whether that was a tactical step back in light of the negative feedback from the market & critics or is a genuine position is known only to those privy to the mechanics of the deal-making that happened behind closed doors. However, in light of these statements, it would be nigh impossible for SEBI to justifiably approve a waiver to an open offer.
But beyond regulations, there is a basic question of logic involved as well. LIC, sitting on a corpus of Rs. 25 lakh crore, is investing between Rs. 10,000 & 13,000 crore into acquiring 40.18% shares (it already holds 10.82%). At mid-range, that would value the company at Rs. 29,865 crore as against a market cap of around Rs. 22,500 crore currently. In a transaction where the government appointed management shall clearly be ceding control to LIC – as this is clearly an acquisition borne out of independent decision making – it would beggar belief if LIC applied for an exemption to invest a mere Rs. 2,000 crore in addition to the much larger amount it is investing at a premium, to the detriment of minority shareholders.
Market sentiment apart, LIC coming in is clearly a lifesaver for IDBI and in the long term would be positive for the shareholders. However, the establishment & stringency of SAST regulations is explicitly on account of the need to protect the rights of the minority shareholders. Any exception to these regulations must not be given lightly, and in the current case, it would be an unjustified move, period.
