The Securities and Exchange Board of India (Sebi) has exempted the government from making an open offer following its acquisition of a significant stake in Vodafone Idea Ltd (Vi). This decision by the market regulator comes after the government approved the conversion of Rs 369.5 billion in outstanding spectrum auction dues into equity in the company. The conversion will result in the government acquiring 36.95 billion new equity shares in Vi, increasing its holding from the existing 22.60 per cent to 48.99 per cent. The promoter and promoter group (excluding the government) will see their holding dilute to 25.57 per cent, while other public shareholders will hold the remaining 25.44 per cent.
According to an order, the Department of Investment and Public Asset Management (DIPAM) sought an exemption from Regulation 3(1) of the Sebi (Substantial Acquisition of Shares and Takeovers) Regulations. Under the Takeover Regulations, acquiring 25 per cent or more of the voting rights in a listed company necessitates a public announcement of an open offer to acquire further shares from the existing shareholders.
However, the government argued for an exemption on several grounds. In its application dated 30 March, DIPAM contended that an open offer would require further financial investment from the government to acquire additional equity. This would negate the primary objective of the debt-to-equity conversion, which is to provide crucial financial support to Vi and ensure its continued operation, thereby protecting investor interests and promoting telecom penetration in India. The government also said that an open offer could potentially push its stake in Vi beyond 50 per cent, leading to a change in control, which is not its intention.
While giving exemption, Sebi noted that at present GoI has no intent to participate in the management or the board of VIL and there will be no change in control of the telecom firm. Further, such holding will be classified as public shareholding. The regulator also noted Vi’s inability to meet its government dues, which prompted the proposal for equity conversion.
While granting the exemption from the open offer obligation, Sebi clarified that the proposed acquisition must comply with the Companies Act and other applicable laws. The government will also be required to file a report with Sebi within 21 days of the completion of the acquisition.
