Exemption order under Regulation 11 of SEBI (SAST) Regulations, 2011 in the matter of Union Bank Of India

SEBI/WTM/ GM /CFD/48/2019-2020 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI 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 UNION BANK OF INDIA

Background –

1.1 Union Bank of India (“Target Company”) is a Public Sector Bank having its Head Office at Union Bank Bhavan, 239, Vidhan Bhavan Marg, Nariman Point, Mumbai - 400021. The shares of the Target Company are listed on BSE Limited (“BSE”) and the National Stock Exchange of India Limited (“NSE”).

1.2 The Target Company filed an application dated November 06, 2019 (“Application”), on behalf of its Promoter i.e. the Government of India (“Proposed Acquirer” / “GOI”) 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.”

Order in the matter of Union Bank of India

1.4 From the aforesaid Application, the following is noted –

A. At the Board Meeting of the Target Company held on September 09, 2019, the Board of Directors accorded approval to create, offer, issue and allot equity shares on preferential basis to GOI for an amount up to ₹ 13,000 Crore subject to other regulatory approvals.

B. Vide letters dated September 27, 2019 and September 30, 2019, GOI proposed an infusion of capital in the Target Company, amounting to ₹ 11,768 Crore.

C. At the Meeting of the Target Company held on October 09, 2019, the Committee of Directors for raising of capital funds approved raising of additional equity capital to the extent of ₹ 11,768 Crore by way of issue of equity shares on a preferential basis to the Proposed Acquirer/Promoter.

D. Resolution for issue and allotment of shares to the Proposed Acquirer/Promoter on preferential basis was passed through postal ballot voting process on November 12, 2019. The issue price per equity share has been arrived at ₹70.90/-, in accordance with Regulation 164(1) of (Issue of Capital and Disclosure Requirements) Regulations, 2009 (“ICDR Regulations”). Based on the issue size of ₹11,768 Crore and issue price of ₹70.90/-, the Proposed Acquirer/Promoter is to be allotted 1,65,98,02,538 equity shares of face value ₹10 each representing 12.48% of the equity share capital of the target company.

E. The shareholding pattern in the Target Company prior to the proposed acquisition and subsequent to the proposed acquisition, is provided as under –

TABLE I – SHAREHOLDING IN THE TARGET COMPANY (SOURCE: APPLICATION) CATEGORY Prior to the Proposed After proposed proposed allotment Acquisition allotment As on 31.03.2017 NO. OF SHARES NO. OF SHARES NO. OF SHARES AND % AND % A. PROMOTER AND 1,30,94,77,239 2,96,92,79,777 1,65,98,02,538 PROMOTER GROUP (74.27%) (86.75%) B. FINANCIAL INSTITUTIONS/BANKS/ 45,35,39,075 45,35,39,075 FOREIGN PORTFOLIO (25.73%) (13.25%) INVESTORS/

NON RESIDENT INDIANS/OVERSEAS CORPORATE BODIES/ OTHER PUBLIC SHAREHOLDERS C. GRAND TOTAL (A + B) 1,76,30,16,314 3,42,28,18,852 1,65,98,02,538 (100%) (100%)

i. From Table I, it is observed that the Proposed Acquirer/Promoter i.e. GOI, held 1,30,94,77,239 equity shares (74.27%) in the Target Company.

ii. Subsequent to the proposed acquisition i.e. preferential allotment of 1,65,98,02,538 equity shares, the Proposed Acquirer/Promoter will hold 2,96,92,79,777 equity shares (86.75%) in the Target Company.

F. The resultant change in shareholding on account of the allotment indicated at paragraph D(ii) above, is likely to increase the concentration of the Proposed Acquirer / Promoter / Government shareholding in the Target Company by 12.48% 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. Kewal Handa Independent Director 2. Rajkiran Rai G. Executive Director 3. Gopal Singh Gusain Executive Director 4. Dinesh Kumar Garg Executive Director 5. Manas Ranjan Biswal Executive Director 6. Madnesh Kumar Mishra GOI Nominee Director 7. Arun Kumar Singh RBI Nominee Director 8. Rajiv Kumar Singh Independent Director 9. K. Ramesha Independent Director 10. Madhura Swaminathan Independent Director 11. Uttam Kumar Sarkar Independent Director 12. K. Kadiresan Independent Director 13. Jayadev M. Independent 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 – 1. The Bank is required to raise capital to meet the minimum regulatory capital requirement as per BASEL-III and for future business growth. With the said objective, the Bank has raised Equity capital of Rs.2,000 crore through Qualified Institutional Placements (QIP) in December, 2017 and Rs.568 crore in March, 2019 through Employee Share Purchase Scheme (ESPS). In addition to the above, equity capital of Rs. 4,524 crores in March, 2018 and Rs. 4,112 crores in March, 2019 has been raised by preferential issue to Promoter viz. GOI. 2. The Board of Directors in its meeting held on May 15, 2019 approved the capital raising plan of the Bank for the FY 2019-20. As per the approval, the Bank during FY 2019-20 can raise capital fund not exceeding of Rs.6,000 crore in form of Equity Capital and/or AT 1 Bonds and/or Tier II Bonds with equity raising not exceeding Rs.4900 crore, by way of equity capital through Public Issue (i.e. follow-on-Public Issue) and/or Rights Issue and/or Private Placement, including Qualified Institutional Placements and/or Preferential Allotment to the GOI and/or other Institutions and/or any other mode(s) subject to approval by Government and other regulatory authorities and raising of AT 1 and/or Tier II not exceeding Rs.4200 crore within the overall capital raising limit of up to Rs.6000 crore.

3. The Government of India on August 30, 2019 announced that the Alternate Mechanism has decided that Andhra Bank and Corporation Bank may consider the amalgamation with Union Bank of India. Further, GOI also announced capital infusion in Union Bank of India to the tune of Rs.11,700 crore. 4. Consequent to the decision of GOI to infuse the proposed capital into the Bank, the Board of the Bank in its meeting held on September 09, 2019 approved the revised capital plan for FY 2019-20 to raise capital funds by an amount not exceeding Rs.17,200 crores within which up to Rs.13,000 crores through equity capital and up to Rs.4,200 crores through AT 1/Tier II bonds. 5. The Government of India vide its letters dated September 27,2019 and September 30, 2019 infused a total capital of Rs.11,768 crore in the Bank, which will provide a healthy cushion to the capital requirements of Union Bank of India. The issue of equity shares will be made by way of preferential allotment to GOI. 6. Further, consequent to the decision of the Alternate Mechanism that Andhra Bank and Corporation Bank may consider amalgamation with Union Bank of India, the process of Amalgamation has been initiated.

Subsequently, the Capital infusion of Rs.11,768 crore by the Government of India will be utilized by the combined entity of Union Bank, Corporation Bank and Andhra Bank, to meet the minimum capital requirement and for business growth once the amalgamation process completes. 7. The Bank is seeking approval from the shareholders through Postal Ballot to issue and allotment of 165,98,02,538 equity shares to the GOI through preferential mode at a price of Rs.70.90. 8. In view of the above, in order to remain compliant with the Regulation 3(2) of SEBI (Substantial Acquisition of Shares and Takeovers), Regulations, 2011, as amended, the application is being preferred. 1.5 Vide email dated November 15, 2019, the Bank has informed that it will increase its public shareholding to at least twenty five per cent within a period of two years from such fall in compliance with the amended rule 19A of SCRR vide (Securities Contracts (Regulation) (Second Amendment) Rules, 1957) dated August 03, 2018. Findings – 2.1 I have considered the Application made by the Target Company on behalf of the Proposed Acquirer/Promoter along with other relevant material available on record.

In this regard, I note that – i. the Target Company has proposed preferential allotment of 1,65,98,02,538 equity shares at a price of `70.90/- per share aggregating to `11,768 Crore increasing the Promoter’s holding from 74.27% to 86.75%. ii. the change in shareholding on account of the aforementioned preferential allotment of equity shares will result in an increase in the Proposed Acquirer/Promoter’s shareholding in the Target Company by 12.48% i.e. more than 5%, thereby attracting the provisions of Regulation 3(2) of the Takeover Regulations. iii. there will be no change in control of the Target Company pursuant to the proposed acquisition as the change will only be in the quantum of shares held 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 is stated to enable the Target Company to meet regulatory capital norms. 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 the conditions stated herein.

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 1,65,98,02,538 equity shares in the Target Company viz. Union Bank of India, 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. iv. The public shareholding in the Bank shall be increased to 25% to comply with minimum public shareholding requirements in terms of Rule 19A of the Securities Contracts (Regulation) Rules, 1957, as undertaken. 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 provisions of securities laws. 3.4 The Application dated November 06, 2019, filed by Target Company on behalf of the Proposed Acquirer/Promoter, is accordingly disposed of.

3.5 A copy of this Order shall be forwarded to the recognised stock exchanges for their information and necessary action.

Place: Mumbai G. MAHALINGAM Date: November 28, 2019 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA