Exemption Order in the matter of acquisition of shares of Andhra Bank under regulation 11 of SAST Regulations, 2011

SEBI/WTM/SR/CFD–DCR/32/05/2017 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI CORAM: S. RAMAN, WHOLE TIME MEMBER ORDER UNDER REGULATION 11(5) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 2011. IN THE MATTER OF PROPOSED ACQUISITION OF SHARES AND VOTING RIGHTS IN ANDHRA BANK.

Background –

1.1 Andhra Bank (“Target Company”) is a Public Sector Bank having its Registered Office at Dr. Pattabhi Bhavan, 5–9–11, Saifabad, Hyderabad–500004. The shares of the Target Company are listed on Bombay Stock Exchange Limited (“BSE”) and the National Stock Exchange of India Limited (“NSE”).

1.2 The Target Company filed an application dated April 29, 2017 (received at SEBI on May 11, 2017) (“Application”), on behalf of its Promoter i.e. the Government of India (“Proposed Acquirer”) seeking exemption from the applicability of Regulation 3(2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Regulations”).

1.3 Regulation 3(2) of the Takeover Regulations, states – “3. Substantial acquisition of shares or voting rights. (2). No acquirer, who together with persons acting in concert with him, has acquired and holds in accordance with these regulations shares or voting rights in a target company entitling them to exercise twenty-five per cent or more of the voting rights in the target company but less than the maximum permissible non-public shareholding, shall acquire within any financial year additional shares or voting rights in such target company entitling them to exercise more than five per cent of the voting rights, unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations: Provided that such acquirer shall not be entitled to acquire or enter into any agreement to acquire shares or voting rights exceeding such number of shares as would take the aggregate shareholding pursuant to the acquisition above the maximum permissible non-public shareholding.”

1.4 From the aforesaid Application, the following is noted –

A. Vide a letter dated March 16, 2017, the Government of India proposed an infusion of capital in the Target Company, amounting to ₹1100 Crores.

B. The aforementioned amount of ₹1100 Crores will be infused through a proposed preferential allotment of 19,16,37,630 equity shares in favour of the Proposed Acquirer/Promoter i.e. the Government of India (“Proposed Acquisition”).

C. At the Board Meeting of the Target Company held on March 27, 2017, the Board of Directors approved raising of additional equity capital to the extent of ₹1100 Crores by way of issue of equity shares on a preferential basis to the Proposed Acquirer/Promoter.

D. An Extra–Ordinary General Meeting (“EGM”) of shareholders in the Target Company was held on May 6, 2017, wherein necessary special resolution was passed for issue and allotment of shares to the Proposed Acquirer/Promoter on preferential basis. The issue price per equity share has been arrived at ₹57.40, in accordance with Regulation 76(1) of (Issue of Capital and Disclosure Requirements) Regulations, 2009 (“ICDR Regulations”). Based on the issue size of ₹1100 Crores and issue price of ₹57.40, the total number of equity shares to be allotted to the Proposed Acquirer/Promoter is 19,16,37,630 of face value ₹10 each.

E. The shareholding pattern in the Target Company (i) as on March 31, 2017 and (ii) subsequent to the proposed acquisition, is provided as under –

TABLE I – SHAREHOLDING IN THE TARGET COMPANY (SOURCE: BSE WEBSITE) CATEGORY AS ON 31.03.2017 SUBSEQUENT TO PROPOSED ALLOTMENT NO. OF SHARES AND % NO. OF SHARES AND % A. PROMOTER AND PROMOTER GROUP 41,73,10,282 60,89,47,912 [61.26%] [69.76%] B. MUTUAL FUNDS/ FOREIGN PORTFOLIO INVESTORS/ 26,38,53,210 26,38,53,210 FINANCIAL INSTITUTIONS/ BANKS/INSURANCE [38.74%] [30.24%] COMPANIES/ LIFE INSURANCE CORPORATION OF INDIA/ OTHER PUBLIC SHAREHOLDERS C. GRAND TOTAL (A + B) 68,11,63,492 87,28,01,122 [100%] [100%]

i. From Table I, it is observed that as on March 31, 2017, the Proposed Acquirer/Promoter i.e. the Government of India, held 41,73,10,282 equity shares (61.26%) in the Target Company.

ii. Subsequent to the proposed acquisition i.e. preferential allotment of 19,16,37,630 equity shares, the Proposed Acquirer/Promoter will hold 60,89,47,912 equity shares (69.76%) in the Target Company.

F. The resultant change in shareholding on account of the allotment indicated at paragraph E(iii) above, is likely to increase the concentration of the Proposed Acquirer/Promoter/Government shareholding in the Target Company by 8.50% during the Financial Year 2017–18 i.e. more than 5%, thereby attracting the provisions of Regulation 3(2) of the Takeover Regulations.

G. The details pertaining to the Board of Directors of the Target Company as on the date of the Application, is provided as under –

TABLE II – BOARD OF DIRECTORS OF THE TARGET COMPANY (SOURCE: APPLICATION) SR. NAME STATUS NO. 1. MR. SURESH N PATEL MANAGING DIRECTOR & CEO 2. MR. S. K. KALRA EXECUTIVE DIRECTOR 3. MR. AJIT KUMAR RATH EXECUTIVE DIRECTOR 4. MS. ANJANA DUBE GOVERNMENT NOMINEE DIRECTOR 5. MR. E. E. KARTHAK RESERVE BANK OF INDIA NOMINEE DIRECTOR 6. MR. A. KRISHNAKUMAR SHAREHOLDER DIRECTOR 7. MR. G. SIVAKUMAR SHAREHOLDER DIRECTOR

H. Submissions made by the Target Company on behalf of the Proposed Acquirer/Promoter for exemption from the provisions of Regulation 3(2) of the Takeover Regulations.

In its Application on behalf of the Proposed Acquirer/Promoter, the Target Company submitted as under – a. “Government of India desires that all public sector banks should be adequately capitalized to keep growth capital over and above the minimum norms of BASEL III. Accordingly, Government has decided to allocate capital in (Target Company) as follows: Date Proposed Fresh Accumulated % of Remarks Allotment of Share Shares of GOI Holding 31.03.2017 41,73,10,282 61.26 Opening Balance Proposed 19,16,37,630 60,89,47,912 69.76 Proposed to be issued after the ensuing Issue EGM scheduled to be held on 06.05.2017 b. Our Bank’s CET – I (Common equity capital) under BASEL III as on 31.03.2016 was 7.77%, Tier I at 1.04% and CRAR at 11.58%.

c. This infusion of equity by Government of India would also give additional leverage to the Bank to raise further equity capital from the public by way of Rights/FPO or from Qualified Institutional Placement (QIP/GDR) at a later date as and when the need arises, subject to necessary approvals from the Government of India and other regulatory authorities. d. Government of India would be acquiring more than 5% of total voting rights during the fresh proposed acquisition. Hence, this may attract the provisions of Regulation 3(2) of the Takeover Regulations, (which) requires than an acquirer obtaining more than 5% of the total voting rights to do so in an Open Offer to acquire shares from other shareholders. We wish to seek exemption from the applicability of this requirement under proviso of Regulation 11 of the aforesaid Regulations.”

Findings –

2.1 I have considered the Application made by the Target Company on behalf of the Proposed Acquirer/Promoter alongwith other relevant material available on record. In this regard, I note – i. The shareholding of the Proposed Acquirer/Promoter in the Target Company as on March 31, 2017, was 61.26% (41,73,10,282 equity shares).

ii. The change in shareholding on account of the allotment of 19,16,37,630 equity shares by way of the proposed preferential allotment, will result in an increase in the Proposed Acquirer/Promoter’s shareholding in the Target Company by 8.50% during the Financial Year 2017–18 i.e. more than 5%, thereby attracting the provisions of Regulation 3(2) of the Takeover Regulations.

iii. The proposed acquisition is necessitated on account of the Government of India’s objective that all Public Sector Banks are adequately capitalized for ensuring compliance with BASEL III norms.

iv. There will be no change in control of the Target Company pursuant to the proposed acquisition as the change will only be in the manner of holding the shares by the Proposed Acquirer/Promoter. Further, there will be no change in the number of equity shares held in the Target Company, by the public shareholders, pursuant to the proposed transactions.

2.2 The infusion of additional capital by the Proposed Acquirer/Promoter will enable the Target Company to maintain a capital over and above the minimum requirement mandated under BASEL III norms and will also provide the Target Company with additional leverage for raising further equity capital at a later date, as and when the need arises. Accordingly, I am of the considered view that exemption as sought for in the Application made by the Target Company, be granted to the Proposed Acquirer/Promoter, subject to certain conditions as ordered herein below.

Order –

3.1 I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”) read with Regulation 11(5) of the Takeover Regulations, hereby grant exemption to the Proposed Acquirer, viz. the Government of India, from complying with the requirements of Regulation 3(2) of the Takeover Regulations with respect to the proposed acquisition of 8.50% equity shares during the Financial Year 2017–18, in the Target Company viz. Andhra Bank, by way of the proposed preferential allotment as mentioned in the Application.

3.2 The exemption so granted is subject to the following conditions:

i. The proposed acquisition shall be in accordance with the relevant provisions of the Companies Act, 2013 and any other applicable law. ii. The Government of India/Target Company shall ensure compliance with the statements and disclosures made in the Application. iii. The statements/averments made or facts and figures mentioned in the Application by the Proposed Acquirer/Promoter are true and correct.

3.3 The exemption granted above is limited to the requirements of making open offer under the Takeover Regulations and shall not be construed as exemption from the disclosure requirements under Chapter V of the Takeover Regulations; compliance with the SEBI (Prohibition of Insider Trading) Regulations, 2015; Listing Agreement/SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 or any other applicable Acts, Rules and Regulations.

3.4 The Application dated April 29, 2017 (received at SEBI on May 11, 2017), filed by Target Company on behalf of the Proposed Acquirer/Promoter, is accordingly disposed of.

Place: Mumbai S. RAMAN Date: May 17, 2017 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA