11 January 2022
The year 2021 saw 81 tender offers aggregating to INR 43,602 crore for acquisition of shares of publicly traded companies in India under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Regulations)[1]. This is higher in terms of both value and number when compared to the pandemic-hit 2020 and the pre-pandemic 2019. During this period, strategic players took centre-stage in driving deal activities, making 78 out of 81 tender offers.
In terms of inflow of funds from abroad, the World Bank reported that India received foreign remittances of USD 87 billion in 2021 making it the world’s largest recipient of foreign exchange this year. IT sector was one of the major recipients of foreign money. We are in the middle of an IT sector boom in India. Businesses are increasingly relying on work-from-home models which has led to increased investments in software and IT infrastructure. The IT sector has witnessed high volumes of growth stage funding, Initial Public Offers (IPOs) and Merger & Acquisition (M&A) deals.
In addition to regular M&A deals, the stressed asset space is also witnessing a high volume of deals. In 2021, the stressed housing finance company, Dewan Housing Finance Corporation Limited (DHFL), was sold to the Piramal Group through the framework under the Insolvency and Bankruptcy Code, 2016 (IBC). The Reserve Bank of India (RBI) too superseded the boards of few companies that were under financial stress, namely, SREI Infrastructure Finance Limited, SREI Equipment Finance Limited and Reliance Capital Limited and initiated IBC proceedings against them.
Separately, the Indian government’s push towards disinvestment is a huge shift in its thinking. In 2021, the Indian Government successfully divested Air India to the Tata Group. We are expecting many other divestment initiatives in 2022. Since most of the PSUs proposed to be divested are publicly traded, we expect to see higher number of control deals in this space in the near future.
In this blog, we have provided a comparison of deal activities in the last three years to give you a better idea about the size and total number of tender offers made in pre-pandemic and the pandemic eras. We will shortly share a report with our detailed analysis.
Analysis of sector-wise activity
In value terms, the mining and metals sector saw the highest aggregate value of tender offers at INR 15,525.22 crore followed by the IT sector aggregating at INR 10,630.06 crore. In number terms the non-banking financial company (NBFC) sector continued to see the highest number of tender offers (15 in all) closely followed by, (i) the manufacturing sector (14 in all) and (ii) IT sector (10 in all). However, since two tender offers in the NBFC sector, namely, for PNB Housing Finance Limited and Canopy Finance Limited were withdrawn, the manufacturing sector will see the highest number of tender offers being completed.
The five biggest tender offers by value were for the companies operating in mining and metals sector (Vedanta Limited), IT sector (Mphasis Limited), manufacturing sector (Escorts Limited), NBFC sector (PNB Housing Finance Limited) and IT sector (Just Dial Limited).
The following graph shows in number and value terms the tender offers in major sectors in calendar year 2021:
Click on the image to enlarge the image.
2021 versus 2020 and 2019
Following table gives comparison in numbers of key features between the years 2021, 2020 and 2019:
| Calendar year | 2021 | 2020 | 2019 |
| Number of tender offers | 81 | 44 | 61 |
| Completed tender offers (tender offers that were launched and completed in the same calendar year) | 50 | 27 | 39 |
| Number of direct tender offers | 76 | 37 | 58 |
| Number of indirect tender offers | 2 | 5 | 3 |
| Number of tender offers made due to breach of 5% creeping acquisition limit | 4 | 4 | 7 |
| Total value of tender offers | INR 436.02 Billion | INR 54.57 Billion | INR 226 Billion |
| Number of tender offers for NBFCs | 15 | 6 | 9 |
| Number of tender offers where underlying transaction was closed before closure of the tender offer | 17 | 13 | 8 |
Other significant trends and highlights of 2021
1. Size of tender offers: The largest tender offer by value was for Vedanta Limited, being INR 15,299 crore (appx.) and the smallest tender offer was for Assam Roofing Limited, being INR 3 lakh. Other large tender offers were for Mphasis Limited ( INR 8,262 crore, appx.), Escorts Limited along with the indirect offer for Escorts Finance Limited (collectively INR 7,503 crore, appx.), PNB Housing Limited (INR 2,855 crore, appx.) and Just Dial Limited (INR 2,222 crore, appx.).
2. Busiest and slowest quarters: The fourth quarter (Q4) of 2021 was the busiest of the four with as many as 24 tender offer announcements. The second quarter (Q2) of 2021 was the quietest with 17 tender offer announcements. The first quarter (Q1) of 2021 had the highest aggregate value of tender offers at INR 16,857 crore, while the third quarter (Q3) of 2021 witnessed the lowest aggregate value of tender offers at INR 3,449 crore. In both value and number terms, tender offers made in each quarter of 2021 exceeded the tender offers announced in the same quarters of 2020 and 2019 (other than in Q2 of 2021 where 17 tender offers stood marginally lower than the 19 announced in Q2 of 2019.)
3. Foreign vs. Indian acquirers: Non-residents made six tender offers[2] in 2021 aggregating to INR 34,199 crore and constituting 78% of the aggregate value of all tender offers this year. The year 2021 saw lesser number of tender offers by non-residents as compared to 2019 and 2020. However, the aggregate value of such tender offers was substantially higher as compared to 2020 (by 559%) and 2019 (by 115%).
4. Time taken by SEBI to clear DLOF: On an average, SEBI took 41 days to issue observations on the draft letters of offer (DLOFs) with the longest being 115 days (in BNK Capital Markets Limited, operating in the NBFC sector) and the shortest being 11 days (in Constronics Infra Limited, operating in the real estate sector). As compared to 2020, the time taken by SEBI to issue observation letters in 2021 was significantly less.
Generally, SEBI took longer to issue observation letters in relation to takeovers of NBFCs (on an average 67 days) with the longest being 115 days (in BNK Capital Markets Limited) and shortest being 34 days (in Magma Fincorp Limited).
The time taken by SEBI to issue observation letters for some of the large tender offers (exceeding INR 200 crore in value) are set out below:
| Sr. No | Name of Company | Time taken by SEBI to clear DLOF (in days) |
| 1. |
Vedanta Limited |
28 |
| 2. | Mphasis Limited | 46 |
| 3. | Just Dial Limited | 35 |
| 4. | Sterling and Wilson Solar Limited | 49 |
| 5. | Thyrocare Technologies Limited | 21 |
| 6. | Magma Fincorp Limited | 34 |
| 7. | Tejas Networks Limited | 48 |
| 8. | Lloyds Metals and Energy Limited | 50 |
5. Offers by financial investors: Strategic players (both resident and non-resident) were at the helm of nearly all (78 out of 81) the takeovers/tender offers in 2021. Certain financial investors too made tender offers in 2021, viz. Blackstone’s offer for Mphasis Limited (IT sector), The Carlyle Group’s offer for PNB Housing Finance Limited (NBFC sector)[3] and SK Capital Partners’ offer for Clariant Chemicals (India) Limited (chemicals sector).
6. Share swap deals: In Spaceage Products Limited and KLK Electrical Limited, the open offer was triggered when the listed company agreed to acquire shares of unlisted companies and allot listed shares in consideration of such acquisition. The shareholders of such unlisted entities had to make the tender offer.
7. Payment of interest for delay: Illustrations of direct tender offers where interest was paid to the shareholders for delay are listed below:
a. a delay in receipt of the RBI approval for change of control impacted the tender offers for NBFCs made for Magma Fincorp Limited (delay of 14 days), Oracle Credit Limited (delay of 96 days) and Richfield Financial Services Limited (delay of 14 days);
b. a delay in the receipt of certain exemptions and no action relief from the U.S. Securities and Exchange Commission impacted offer for Vedanta Limited (delay of 20 days); and
c. past breaches of Takeover Regulations resulted in the tender offer for OneSource Ideas Ventures Limited (delay of 224 days) and Rama Steel Tubes Limited (delay of 1821 days).
In indirect tender offers, namely for Clariant Chemicals (India) Limited and Escorts Finance (India) Limited, interest will have to be paid to shareholders as part of the open offer price.
8. Voluntary tender offers: Promoters of Vedanta Limited, Lords Chloro Alkali Limited and Mangalam Industrial Finance Limited announced voluntary tender offers to consolidate their respective shareholding in these entities.
9. Withdrawal of tender offer: Tender offers which were withdrawn were PNB Housing Finance Limited (due to non-receipt of in-principle approval from the stock exchanges for the preferential allotment) and Canopy Finance Limited (due to RBI rejecting the application for change of control).
10. Tender offer pursuant to SEBI directions: Tender offer for Rama Steel Tubes Limited was made pursuant to SEBI directions.
11. Trend in penalty for disclosure violations: Like in the past, in 2021 too, SEBI typically imposed penalties in the range of INR 1,00,000 to INR 3,00,000 per violation. If the violations are repetitive, then the penalties tend to be higher.
New trend: Quick closure of underlying secondary transactions
Underlying secondary transactions, i.e. share purchase transactions, can be closed at any time after making the public announcement for the open offer.
The language of Regulation 22(2A) of the Takeover Regulations has been amended[4] in such a way that you do not have to wait for the expiry of 21 working days from the date of the detailed public statement (DPS) for an on-market closure of the underling share purchase deal. The shares so acquired should lie in the regulatory escrow until the expiry of at least 21 working days from the DPS. In addition, 100% of the open offer consideration should have been deposited in cash in the regulatory escrow to move the acquired shares to the acquirer’s demat account so that the acquirer can start exercising voting rights on the acquired shares.[5] Please note that this quick closure is not possible for off-market transactions.
The quick on-market closure ensures (i) greater deal certainty; and (ii) no impact of market volatility if the deal is announced after market hours on one working day and is closed first thing in the morning on the next working day.
The acquirers will need to take a conscious call to adopt such quick on-market closure since the acquirer will not be able to exercise any voting rights on the purchased shares for approximately 30 days after the public announcement of the tender offer.
This approach of quick on-market closure was recently taken by Reliance Retail Ventures Limited in its acquisition of Just Dial Limited and by the Tata Group in its acquisition of Tejas Networks Limited. In the case of Just Dial Limited, the share purchase agreement was signed on July 16, 2021 and closed on market on July 20, 2021. Reliance-Just Dial deal set the precedent for such quick on-market closures of underlying share purchase transactions.
In the case of Tejas Networks Limited, the share purchase agreement was signed on July 29, 2021 and closed on-market on July 30, 2021. We are expecting a higher number of quick closures based on the Reliance-Just Dial deal precedent.
Need for Amendments
Resolution of stressed assets through the IBC process takes a long time (approximately 2.5 years on an average) for final resolution. Outside the IBC framework, RBI’s ‘Prudential Framework for Resolution of Stressed Assets’[6] (Stressed Asset Framework) along with Regulation 164A of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations), introduced by SEBI in 2020, allow for resolution of stressed assets in a quicker time frame, i.e. approximately six months.[7] Quick resolution of stressed assets benefits all stakeholders involved including lenders, public shareholders, employees and the incoming promoter and also reduces the administrative burden on the National Company Law Tribunal. However, the main concern holding back such deals is the higher risks faced by the incoming promoters / acquirers especially in relation to actions of the past management.
As we had argued earlier[8], there is a need for the government/ regulators to introduce measures to ring fence the incoming promoters from past actions of pervious management in stressed companies. We propose that all acquirers who are acquiring controlling stake in stressed companies under Regulation 164A of the ICDR Regulations and RBI’s Stressed Asset Framework should be offered immunity from liabilities arising out of past actions of previous managements similar to the immunity granted under Section 32A of the IBC.
SEBI has recently issued a consultation paper proposing changes to the pricing guidelines under Regulation 164A of the ICDR Regulations from 2-week VWAP to 10 trading days VWAP. In stressed company deals, the 2-week / 10 trading day pricing regime is not particularly helpful as any rumor of potential control transaction may also make the 2-week / 10 trading day VWAP a thoroughly unacceptable proposition. Since such deals will be hard fought battles with the lenders who will not agree to any random pricing for change in control, fixing the price for the deal should be purely a matter of negotiation and contract and not a pricing regime.
We are already seeing a lot of interest from Indian as well as foreign acquirers in the takeover of stressed assets. Therefore, ring-fencing measures and freedom of contracting as summarised above will encourage different categories of acquirers (especially, the PE funds) to do such deals.
The Year Ahead
The IT sector will continue to receive a large amount of funding. We are also expecting a lot of M&A transactions in the clean energy space.
The number of M&A transactions in the stressed assets space will also rise.
Additionally, with the successful divestment of Air India to Tata Group in 2021, we expect the Indian government to decisively go ahead and formalise its disinvestment agenda in 2022. We expect a lot of interest from both Indian and foreign acquirers in such divestment initiative.
*The authors were assisted by Arnav Shah, Principal Associate
For further information, please contact:
Cyril Shroff, Managing Partner, Cyril Amarchand Mangaldas
cyril.shroff@cyrilshroff.com
[1] As per the data available on the website of the Securities and Exchange Board of India as on January 3, 2022.
[2] Please note that The Carlyle Group’s tender offer for PNB Housing Finance Limited has been withdrawn.
[3] This offer has been withdrawn.
[4] Words “other than through bulk deals or block deals,” omitted by the SEBI (Substantial Acquisition of Shares and Takeovers) (Third Amendment) Regulations, 2020, w.e.f July 1, 2020.
[5] Indeed, the acquirer has the option not to deposit the 100% of the open offer consideration and move the shares into its own demat account only after the open offer closure.
[6] RBI’s circular on Prudential Framework for Resolution of Stressed Assets dated June 7, 2019 with reference number RBI/2018-19/ 203 DBR.No.BP.BC.45/21.04.048/2018-19.
[7] The bail out of CG Power and Industrial Solutions Limited by Muruguppa Group was completed in approximately 8 months.
[8] https://corporate.cyrilamarchandblogs.com/2021/01/takeover-of-publicly-traded-companies-flashback-2020/
