Exemption Order in the matter of Union Bank of India

WTM/GM/CFD/ 102 /2018–19 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER UNDER SECTION 11(1) AND SECTION 11(2)(h) OF THE SEBI ACT READ WITH 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 – TARGET COMPANY UNION BANK OF INDIA ACQUIRER GOVERNMENT OF INDIA

Background –

1. Union Bank of India (“Target Company”) is a Public Sector Bank having its Registered Office at 239, Vidhan Bhavan Marg, Nariman Point, Mumbai- 400092. The shares of the Target Company are listed on BSE and the National Stock Exchange of India Limited (“NSE”).

2. The Target Company (“Applicant”) filed an application dated February 28, 2019 (“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”).

3. From the aforesaid Application, the following is noted – A. The details pertaining to the Board of Directors of the Target Company as on the date of the Application, is provided as under – TABLE 1 SR. NAME STATUS NO. 1. MR. RAJKIRAN RAI G MANAGING DIRECTOR AND CEO 2. MR. GOPAL SINGH GUSAIN EXECUTIVE DIRECTOR 3. MR. RAJ KAMAL VERMA EXECUTIVE DIRECTOR 4. MR. DINESH KUMAR GARG EXECUTIVE DIRECTOR 5. DR. MADNESH KUMAR MISHRA GOVERNMENT NOMINEE 6. MR. ANIL KUMAR MISHRA RBI NOMINEE 7. MR. RAJIV KUMAR SINGH NOMINEE DIRECTOR Order in the matter of Union Bank of India

8. DR. K RAMESHA NOMINEE DIRECTOR 9. DR. MADHURA SWAMINATHAN NOMINEE DIRECTOR 10. MR. KEWAL HANDA NOMINEE DIRECTOR 11. MR. K. KADIRESAN INDEPENDENT DIRECTOR 12. MR. JAYADEV M. INDEPENDENT DIRECTOR 13. DR. UTTAM KUMAR SARKAR INDEPENDENT DIRECTOR

B. Vide a letter dated February 19, 2019 the Government of India proposed an infusion of capital in the Target Company, amounting to ₹4,112 crore, through a proposed preferential allotment in favour of the Proposed Acquirer/Promoter i.e. the Government of India. (“Proposed Acquisition”). The same was authorized on February 19, 2019 by the Board of Directors of the Bank and the Committee of the Directors of the Bank in its meeting held on February 26, 2019. The stated reason for this infusion of capital is to augment the eroded capital base, to meet the Basel III capital requirement as well as the growth capital for the Bank.

C. An Extra–Ordinary General Meeting (“EGM”) of shareholders in the Target Company has been convened on March 26, 2019, for seeking approval of the Members for the proposed issue and allotment of shares to the Proposed Acquirer/Promoter by way of Special Resolution. The issue price per equity share has been arrived at ₹78.84, in accordance with Regulation 164(1) of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. Based on the issue size of ₹4112 Crores and issue price of ₹78.84, the total number of equity shares to be allotted to the Proposed Acquirer/Promoter is 52,15,62,658 of face value ₹10 each.

D. The shareholding pattern in the Target Company (i) as on March 31, 2018/prior to the proposed acquisition and (ii) subsequent to the proposed acquisition, is provided as under –

TABLE 2 Category As on 31.03.2018 Post Proposed Allotment No. of shares and No. of shares % and % A. Promoter and Promoter 78,79,14,581 1,30,94,77,239 Group [67.43%] [73.98%]

B. Financial 38,06,58,800 46,06,58,800 Institutions/Banks [32.57%] [26.02%] FPIs/NRIs/OCBs/Other Public Shareholders C. TOTAL (A + B) 1,16,85,73,381 1,77,01,36,039 [100%] [100%] E. The target company is also in process of issuing upto 8,00,00,000 (Eight crore) new equity shares to the eligible employees of the target company under Union Bank – ESPS (Employee Stock Purchase Scheme). The proposal has been approved by the shareholders on February 14, 2019 and the ESPS Issue closed on the March 16, 2019. The number of shares & percentage of shareholding after the issue of shares pursuant to ESPS stated in Table 2 above is calculated taking into consideration issue of maximum shares i.e. 8,00,00,000 under ESPS.

F. Details of Pre & Post allotment of shareholding without considering proposed ESPS issue – TABLE 3

Promoter Shareholding Public Shareholding Total Particulars % of % of % of No of Shares No of Shares No of Shares holdin holdin holdi Held Held Held g g ng Shareholding as on 31.03.2018 78,79,14,581 67.43 38,06,58,800 32.57 1,16,85,73,381 100 Shareholding after Pref. Allotment 1,30,94,77,239 77.48 38,06,58,800 22.52 1,69,01,36,039 100 % change in GoI holding 10.05

G. Subsequent to issuance of 52,15,62,658 equity shares to GoI, taking into account issuance and acceptance of maximum number of shares i.e. 8,00,00,000 under Union Bank – ESPS, the shareholding of promoter in the target company would be 73.98%, which complies with the requirements pertaining to minimum public shareholding(MPS) prescribed under Rule 19A(1) of the SC(R)R, 1957. However, without considering issuance and acceptance of maximum number of shares i.e. 8,00,00,000 under Union Bank – ESPS, the shareholding of promoter in the target company would be 77.48%, which does not comply with requirements pertaining to minimum public shareholding(MPS) prescribed under Rule 19A(1) of the SC(R)R, 1957. In such a scenario the applicant would be required to bring down the non-public shareholding to the level as specified and within the time permitted under Rule 19A(2) of the Securities Contracts (Regulation) Rules, 1957 to comply with the requirements pertaining to minimum public shareholding(MPS).

H. Post the preferential allotment, the shareholding of Govt. of India (Promoter) is likely to increase from 67.43% (as on date) to 73.98% (or upto 77.48%, depending on issuance of shares under ESPS) which is in excess of 5% of the paid-up capital of the Bank during the current Financial year (2018-19) thereby attracting the provisions of Regulation 3(2) of the Takeover Regulations. The applicant submitted that the actual increase may vary depending on the allotment of equity shares in ESPS after the proposed Preferential Allotment but in any case the increase in promoter holding would not be more than 10.05%.

Findings – 4. 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 Proposed Acquisition during the Financial Year 2018–19 would increase Promoter’s holding from 67.43% to 73.98% (after taking into account the issuance of shares pursuant to the ESPS) thereby resulting in an increase in the Proposed Acquirer/Promoter’s shareholding in the Target Company by more than 5%, and which would trigger the provisions of Regulation 3(2) of the Takeover Regulations. 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.”

(ii) The Proposed Acquisition by Government of India is being made as a part of its Capital Infusion and PSB Reforms Agenda.

(iii) There will be no change in control of the Target Company pursuant to the proposed acquisition. 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.

(iv) However, I note that without considering issuance and acceptance of maximum number of shares i.e. 8,00,00,000 under Union Bank – ESPS, the shareholding of promoter in the target company would be 77.48%, which would not comply with requirements pertaining to minimum public shareholding(MPS) prescribed under Rule 19A(1) of the Securities Contracts (Regulation) Rules, 1957 (“SC(R)R, 1957”). Any breach of MPS norms would require the applicant to bring down the non-public shareholding to the level as specified and within the time permitted under Rule 19A (2) of the SC(R)R, 1957.

5. The infusion of additional capital by the Proposed Acquirer/Promoter will enable the Target Company to maintain a capital over and above the minimum regulatory capital requirement, for further growth 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 – 6. I, in exercise of the powers conferred upon me under Section 11(1) and Section 11(2)(h) of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”) and Regulation 11(5) of the Takeover Regulations read with Section 19 of the SEBI Act, 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 6.55% equity shares in the Target Company viz. Union Bank of India, during the Financial Y.ear 2018–19, through the proposed preferential allotment as mentioned in the Application.

7. 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. iv. In the event of the MPS norms under SC(R)R, 1957 being breached, the applicant would be required to bring down the non-public shareholding to the level as specified and within the time permitted under Rule 19A(2) of the SC(R)R, 1957.

8. 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 and the Listing Agreement/SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

9. The Application as filed by Target Company on behalf of the Proposed Acquirer/Government of India, is accordingly disposed of.

10. A copy of this Order shall be forwarded to the recognized Stock Exchanges for their information and necessary action.

Place: Mumbai G. MAHALINGAM Date: March 22, 2019 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA