Corporation Bank- Order in the matter of exemption application under regulation 11(1) of SEBI (SAST) Regulations, 2011

WTM/PS/56/CFD-DCR-1/SEPT/2015 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER In the matter of proposed acquisition of equity shares of Corporation Bank - Application filed under Regulation 11(1) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011

1. Corporation Bank (hereinafter referred to as ‘the Target Company’ or ‘the Bank’) is a public sector bank, having its Head Office at Mangala Devi Temple Road, Pandeshwar, Mangaluru - 575001. The shares of the Bank are listed on the Bombay Stock Exchange Limited (‘BSE’) and the National Stock Exchange of India Limited (‘NSE’).

2. The Bank filed an application vide letter dated September 03, 2015, with the Securities and Exchange Board of India (hereinafter referred to as ‘the SEBI’), on behalf of its promoter, the Government of India (hereinafter referred to as ‘the GoI’), under Regulation 11(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as ‘the Takeover Regulations’), seeking exemption for the GoI from the applicability of Regulation 3(2) of the Takeover Regulations, in respect of the proposed acquisition of 15,66,15,497 equity shares by the GoI through a proposed preferential allotment by the Bank. In the aforesaid application, inter alia, the following submissions were made : (i) The authorised capital of the Target Company is ₹3,000 crore and its paid-up equity share capital as on March 31, 2015 was ₹167.54 crore. Presently, the GoI is holding 53,05,25,885 shares i.e. 63.33% of the paid-up capital of the Bank. (ii) The GoI, as part of the project ‘INDRADHANUSH PLAN’ dated August 14, 2015, for revamp of the public sector banks the GoI has decided to infuse additional capital in public sector banks including the Bank. The GoI desires that all public sector banks should adequately be capitalised to keep a safe buffer over and above the minimum norms of Basel III. In this regard, the GoI, through the Ministry of Finance, had vide letter dated August 19, 2015, conveyed the decision to infuse capital to the extent of ₹857 crore in the Bank against allotment of equity on preferential basis in favour of the GoI.

(iii) Pursuant to the same, the Board of Directors of the Bank, in their meeting held on August 24, 2015 and September 01, 2015, approved raising of the equity capital to the extent of ₹857 crore, by way of issue of equity shares in favour of the GoI, on preferential basis subject to the approval of the Reserve Bank of India (‘RBI’), the shareholders and other statutory authorities. Extra-Ordinary General Meeting (‘EGM’) of the shareholders was proposed to be convened on September 28, 2015, to pass the necessary resolution for the proposed issue of the equity shares to the GoI on preferential basis. (iv) The relevant date has been taken as August 28, 2015, for ascertaining the issue price to arrive at the quantity of shares to be issued. The issue price of ₹54.72 per equity shares is arrived at in terms of the Regulation 76 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (hereinafter referred to as ‘the ICDR Regulations’). Based on the issue price and the issue size of ₹857 crore, the total number of shares proposed to be allotted to the GoI would be 15,66,15,497 equity shares. Accordingly, the post issue shareholding of the GoI would be 68,71,41,382 equity shares (i.e. 69.11%). (v) As the difference between the pre-allotment and post-allotment shareholding of the GoI in the Target Company would be more than 5% (the shareholding of the GoI may increase from 63.33% to 69.11%, an increase of around 5.78%), the GoI had asked the Target Company to take all necessary steps/ approvals.

3. In the application, the following points were put forth as justification by the Bank for seeking exemption on behalf of the GoI from SEBI : (i) GoI, as part of its project ‘INDRADHANUSH PLAN’ for revamping of public sector banks has decided to infuse additional capital of ₹857 crore in the Bank. (ii) As per the RBI guidelines, banks are required to maintain Tier-I capital adequacy ratio of 8.13% under Basel III Guidelines for the Financial Year 2015-16. To attain the same, the Target Company had projected the minimum required Tier-I capital at ₹12,640 crore, against which it estimates its capital to be at ₹11,615 crore after reckoning the internal accruals. Thus a capital shortfall of ₹1,025 crore is projected for the Financial Year 2015- 16. (iii) The infusion of the equity by the GoI would give additional leverage to the Bank to raise further equity capital from the public by way of Rights/ Follow on Public Offer or from Qualified Institutional Placement, as and when the need arises.

(iv) From the notice of EGM, it is noted that even after infusion of capital by the GoI and proposed preferential allotment, the public shareholding would be maintained at around 30.89% and there would no change in control in the management of the Bank.

4. The shareholding pattern in the Target Company, prior to and post the proposed allotment to the GoI, as mentioned in the application, is given below : Shareholding pattern in the Target Company Category Before the proposed issue of Post issue of equity through equity proposed preferential issue to GoI No. of %age No. of shares %age shares Promoter Group (GoI) 53,05,25,885 63.33 68,71,41,382 69.11 Public 30,71,83,500 36.67 30,71,83,500 30.89 Total 83,77,09,385 100 99,43,24,882 100

5. Thereafter, SEBI vide e-mail dated September 10, 2015, sought certain details from the Target Company i.e. the status of compliance of the Acquirer with the provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and Takeover Regulations for the past 10 years and the minimum offer price of the shares of the Target Company in accordance with the Regulation 8 of the Takeover Regulations, while taking the date of application as the reference date. The Target Company vide its letter dated September 11, 2015, replied to the SEBI and submitted the status of compliance of the Acquirer and the minimum offer price.

6. I have considered the application made by the Bank on behalf of the GoI, the documents submitted therewith, the information/material forwarded subsequently and the material available on record. The GoI is a shareholder of the Bank under the category 'Promoter and Promoter Group', and is the proposed Acquirer. The GoI presently holds 53,05,25,885 shares in the Target Company, which constitutes 63.33% of the total number (83,77,09,385 shares) of equity shares. I note that the GoI, as part of its project ‘INDRADHANUSH PLAN’ for revamp of public sector banks has decided to infuse additional capital to the tune of ₹857 crore into the Bank by way of preferential allotment of equity shares. The Board of Directors of the Bank had on September 01, 2015, approved the increase in the paid-up capital of the Target Company to the extent of ₹857 crore against the issuance of equity shares on preferential basis to the GoI.

7. The issue price for the proposed allotment has been fixed at ₹54.72 per equity share of ₹2 each, in terms of Regulation 76(1) of the ICDR Regulations, taking into consideration August 28, 2015 as the ‘relevant date’. The proposed allotment of 15,66,15,497 equity shares of the Target Company to the GoI would increase the shareholding of the GoI (in the Target Company) from 63.33% to 69.11%, would trigger the provisions of Regulation 3(2) of the Takeover Regulations. Accordingly, the Bank on behalf of the GoI, has sought exemption from the applicability of the said regulation.

8. As per the explanatory statement to the EGM notice, the Bank proposes to issue upto 15,66,15,497 equity shares at a price of ₹54.72 to the GoI against infusion of funds to the tune of ₹857 crore by the GoI, in order to meet the growing requirement of funds for expanding the business by way of long term resources and for general lending purposes as also to comply with Basel – III requirements relating to the capital adequacy. In this regard, I note that such additional capital will help the Bank to keep a safe buffer over and above the minimum norms of Basel III and would give additional leverage to raise further equity capital at a later date as and when the need arises. I note that the capital adequacy of the Bank is a requirement to protect its small customers as well as the public shareholders who have invested in its equity. Further, there would be no change in the management control in the Target Company.

9. Considering the proposed allotment of equity to the GoI in the light of the reasons stated by the Target Company and the observations made above, I am of the considered view that this is a fit case to grant exemption under Regulation 11(1) of the Takeover Regulations to the GoI from the obligation to make an open offer as stipulated under Regulation 3(2) of the Takeover Regulations with respect to its proposed increase of shares/ voting rights from 63.33% to 69.11% in the Target Company, pursuant to the proposed preferential issue and allotment of 15,66,15,497 equity shares.

10. In view of the foregoing, I, in exercise of the powers conferred upon me under section 19 of the Securities and Exchange Board of India Act, 1992 read with Regulation 11(5) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, hereby grant exemption to the proposed Acquirer, the Government of India, from complying with the requirements of Regulation 3(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, with respect to its proposed acquisition of 15,66,15,497 equity shares of Corporation Bank by way of preferential allotment. The above exemption is granted subject to the following conditions, in the interest of investors and the securities market: a. The proposed acquisition shall be in accordance with the relevant provisions of the Companies Act, 1956, the Companies Act, 2013, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, the Listing Agreement, the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and all other applicable laws. b. The GoI/ Target Company shall ensure compliance with the statements, disclosures and undertakings made in the application and in subsequent correspondence. c. The exemption is only limited to the requirements of making open offer under Regulation 3(2) of the Takeover Regulations and shall not extend to other obligations (e.g. disclosure requirements under Chapter V of the said Takeover Regulations, Listing Agreement/ Regulations or any other law) of the GoI/ Target Company.

11. Accordingly, the application filed by Corporation Bank vide letter dated September 03, 2015 on behalf of the Government of India is disposed off.

Date : September 29th, 2015 PRASHANT SARAN Place : Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA