Takeover norms revised; ADRs/GDRs at par with domestic shares

Market regulator SEBI today revised the takeover norms by bringing ADRs/GDRs with voting rights on par with the domestic shares, which makes an open offer mandatory if 15 per cent stake is bought in a company through these securities.

The revised norms may have major ramification on the fate of proposed Bharti-MTN deal as both the parties hammering out the contentious issues including the open offer.

At present, an open offer is triggered by holding of ADRs/GDRs (American and Global Depositary Receipts) only if they are converted into domestic shares with voting rights. The purchase of 15 per cent domestic shares also makes it mandatory for the buyer to make an open public offer to buy an additional 20 per cent equity in the company.

Following the revision of regulations, buying 15 per cent ADRs/GDRs would also trigger an open offer, provided these securitieshave voting rights attached with them.  For ADRs/GDRs without voting rights, an open offer would be triggered only after their conversion into domestic equity shares with voting rights.

The revision is in tune with the market developments, adding that the amendment will be applicable from the day it takes place it would not be effective retrospectively.  The amendment will bring ADR/GDR holders with voting rights at par with the shareholders.

"The ADR/GDR exemption was given at a time when the voting rights of ADR/GDR holders never used to be with the individual holders".  But we find that, of late, people are looking at this structures whereby voting rights remain with the ADR/GDR holders. In other words, depositories would vote at the instructions of ADR or GDR holders.

Takeover norms would now cover IDRs and GDRs with voting rights. IDRs can also have anchor investors.

The SEBI Board has also decided to extend the concept of 'anchor investors' to issue of Indian Depository Receipts (IDRs) on similar terms as applicable to public issues made by domestic companies.

The board said that at least 30 per cent of the issue size of the IDRs will need to be reserved for allocation to retail individual investors, who may otherwise be crowded out.