INDIA Law and Practice Contributed by: Anand Lakra, Shivpriya Nanda, Zain Pandit and Ami Shah, JSA Advocates & Solicitors
information will be disregarded in computing open offer prices.
ing acquisition route and acquirers can acquire 4.9% every financial year (without triggering an open offer) as one of the stakebuilding strate - gies. 4.2 Material Shareholding Disclosure Threshold In accordance with the SEBI (Substantial Acquisi - tion of Shares and Takeovers) Regulations, 2011 (the “Takeover Regulations” ), any initial acquisi - tion of a 5% or more stake in a listed company is required to be disclosed. Further, any change in shareholding from the previous disclosure is required to be disclosed to the public and stock exchanges if such change exceeds 2% of the shareholding. Additionally, any encumbrance created by the promoters on their shareholding is also required to be disclosed under the pro - visions of the Takeover Regulations. Further, in accordance with the SEBI (Prohibition of Insider Trading) Regulations, 2015 (the “Insider Trading Regulations” ), trades beyond certain thresholds by an “insider” to a company are required to be disclosed within two trading days from the com - pletion of the trade. In accordance with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (the “Listing Regulations” ), the quarterly share - holding pattern filed by the listed entity would disclose the details of all the persons holding 1% or more shares or voting rights in the entity and While a company can introduce a stricter thresh - old in its by-laws, the validity of such specific action remains to be tested by the Indian courts. Additional hurdles to stakebuilding include the requirement to make disclosures regarding any acquisition that exceeds the prescribed thresh - olds, sector-specific caps under Indian foreign the shareholding of the promoters. 4.3 Hurdles to Stakebuilding
4. Stakebuilding 4.1 Principal Stakebuilding Strategies Stakebuilding is relevant in the context of a listed entity in India. It is not customary, primarily for the following two reasons. • Indian capital markets are open to only cer - tain categories of investors. For example, reg - istered foreign portfolio investors are permit - ted to acquire shares on the market (whereas FDI investors are not permitted unless they are already in control of the listed target). Additionally, the maximum holding of an FPI in a listed company is limited to 9.9%. • Generally, promoters (controlling sharehold - ers) hold a significant stake in Indian listed companies leading to a situation where inves - tors may not be able to acquire a meaningful stake without entering bilateral discussions with the promoters. Accordingly, stakebuild - ing is typically facilitated by negotiations and discussions between an acquirer and the promoters. As explained in more detail in Section 6. Struc- turing , a requirement to make a public offer is triggered upon an initial acquisition of shares or voting rights of 25% or more in a listed com - pany. However, any acquisition by a prospective acquirer in the 52 weeks preceding the tender offer affects the offer price if consummated at a price higher than the offer price. Additionally, if any acquirer holds 25% or more voting rights in a listed company, any acquisition of more than 5% voting rights by such acquirer in a financial year triggers an obligation to make a tender offer – such acquisition is referred to as the creep -
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