Exemption order under regulation 11 of SEBI (SAST) Regulations, 2011 in the matter of Punjab National Bank

WTM/GM/CFD/70/2018–2019 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 PUNJAB NATIONAL BANK ACQUIRER GOVERNMENT OF INDIA

BACKGROUND –

1. Punjab National Bank (“Target Company”) is a Scheduled Commercial Bank having its Head Office at Plot No. 4, Sector 10, Dwarka, New Delhi–110075. The Target Company was incorporated on April 12, 1895. The shares of the Target Company are listed on the BSE Limited (“BSE”) and the National Stock Exchange of India Limited (“NSE”).

2. The Target Company filed an application dated October 1, 2018 (“Application”) and subsequently a Revised Application dated October 24, 2018 (“Revised 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”).

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:

Order in the matter of Punjab National Bank

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.”

4. From the Application, the letter dated October 12, 2018 along with the e–mail dated October 15, 2018 and the Revised Application, as submitted by the Target Company, the following is noted –

A. Vide a letter dated September 25, 2018, the GOI proposed an infusion of capital in the Target Company amounting to ₹5431 Crores through a preferential allotment of equity shares of the Target Company, to the Proposed Acquirer/GOI.

B. At the Board Meeting of the Target Company held on September 27, 2018, the Board of Directors approved raising of additional equity capital to the extent of ₹5431 Crores by way of issue of equity shares on a preferential basis to the Proposed Acquirer/GOI (“Proposed Acquisition”).

C. Accordingly, the Target Company has decided to issue 63,81,90,364 equity shares of face value ₹2 each (aggregating ₹5431 Crores) to the Proposed Acquirer/GOI, at an issue price of ₹85.10 as determined under Regulation 76(1) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (“ICDR Regulations”).

D. An Extra–Ordinary General Meeting (“EGM”) of shareholders in the Target Company was held on October 30, 2018, for obtaining the requisite approval/special resolution for the proposed acquisition. The aforesaid approval was obtained on that date as confirmed vide the Target Company’s e–mail dated October 30, 2018.

E. Accordingly, the shareholding pattern in the Target Company as on (i) March 31, 2018; (ii) prior to the proposed acquisition i.e. as on September 19, 2018 and (iii) subsequent to the proposed acquisition, is provided as under –

TABLE I – SHAREHOLDING IN THE TARGET COMPANY (SOURCE: APPLICATION) CATEGORY AS ON 31.03.2018 PRIOR TO PROPOSED SUBSEQUENT (I) PROPOSED ACQUISITION TO PROPOSED ALLOTMENT ALLOTMENT (II) (III) NO. OF SHARES NO. OF SHARES NO. OF SHARES NO. OF SHARES AND % AND % AND % AND % A. PROMOTER AND 171,84,45,145 *203,14,38,364 ^63,81,90,364 266,96,28,728 PROMOTER GROUP [62.25%] [66.09%] [5.83%] [71.92%] B. PUBLIC 104,21,28,082 104,21,28,082 104,21,28,082 SHAREHOLDING [37.75%] [33.91%] – [28.08%] C. GRAND TOTAL 276,05,73,227 307,35,66,446 – 371,17,56,810 [A + B] [100%] [100%] [100%] *On September 19, 2018, a preferential allotment of 31,29,93,219 (3.84 %) shares was made to the GOI pursuant to which shareholding of GOI/Promoter increased from 62.25% to 66.09%. ^Vide the Revised Application, the issue price was revised from ₹84.98 to ₹85.10 and consequently, the no. of shares proposed to be allotted to the GOI decreased from 63,90,91,550 to 63,81,90,364 equity shares.

F. The Board of Directors of the Target Company as provided in the Application, is as under –

TABLE II – BOARD OF DIRECTORS OF THE TARGET COMPANY SR. NAME STATUS NO. 1. SUNIL MEHTA MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER 2. SUNIL MEHTA NON–EXECUTIVE CHAIRMAN 3. K. V. BRAHMAJI RAI EXECUTIVE DIRECTOR 4. L. V. PRABHAKAR EXECUTIVE DIRECTOR 5. SANJIV SARAN EXECUTIVE DIRECTOR 6. RAVI MITTAL GOVERNMENT NOMINEE DIRECTOR 7. DR. RABI N. MISHRA RBI NOMINEE DIRECTOR 8. MAHESH BABOO GUPTA NON–EXECUTIVE DIRECTOR 9. DR. ASHA BHANDARKAR SHAREHOLDER DIRECTOR 10. SUDHIR NAYAR SHAREHOLDER DIRECTOR 11. SANJAY VERMA SHAREHOLDER DIRECTOR

G. Grounds for exemption as submitted by the Target Company on behalf of the Proposed Acquirer/GOI for exemption from the provisions of Regulation 3(2) of the Takeover Regulations.

a. In an initiative to strengthen the capital adequacy of the Public Sector Banks (PSBs), the Government of India has decided to raise its holding in these Banks. Accordingly, GOI vide their letter F. No. 7/38/2014–BOA dated 25.09.2018 has decided to infuse capital to the tune of ₹5,431Crore as growth capital in the Bank by way of preferential allotment of equity shares in favour of GOI.

b. The Bank has convened an Extraordinary General Meeting on October 30, 2018 for seeking approval of the shareholders for the proposed issue and allotment of upto 63,81,90,364 equity shares at a price of ₹2 each fully paid for cash at a premium of ₹83.10 each aggregating to ₹5,431crore by way of Special Resolution to GOI. c. Post the preferential allotment, GOI’s shareholding (the promoter) will increase from 66.09% to 71.92%, (as on the date of the acquisition), that is in excess of 5% of the paid-up capital of the Bank, during the current Financial year (2018-19) attracting the provision of Regulation 3(2) of the Takeover Regulations, as amended. Thus, in order to remain compliant with the aforesaid Regulation, the Application is being preferred.

CONSIDERATION –

5. I have considered the Application made by the Target Company on behalf of the Proposed Acquirer/GOI along with other relevant material available on record. In this regard, I note as under – i. From Table I above, it is observed that as on March 31, 2018, the Proposed Acquirer/GOI held 171,84,45,145 (62.25%) equity shares in the Target Company.

ii. During the Financial Year 2018–19 i.e. on September 19, 2018, a preferential allotment of 31,29,93,219 (3.84%) shares was made to the GOI pursuant to which the Promoter shareholding increased to 66.09%. Consequently, the public shareholding in the Target Company decreased from 37.75% to 33.91%.

iii. Subsequent to the proposed acquisition indicated at Table I above i.e. preferential allotment of 63,81,90,364 equity shares, the Proposed Acquirer/GOI will hold 266,96,28,728 (71.92%) equity shares in the Target Company. Consequently, the public shareholding in the Target Company will decrease from 33.91% to 28.08%.

iv. The resultant change in shareholding on account of the allotment indicated at paragraph (iii) above, will increase the concentration of the Proposed Acquirer/GOI shareholding in the Target Company by 5.83% during the Financial Year 2018–19 i.e. more than 5%, thereby attracting the provisions of Regulation 3(2) of the Takeover Regulations.

v. 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/GOI. Further, there will be no change in the number of equity shares held by the public shareholders in the Target Company pursuant to the proposed acquisition.

6. The infusion of additional capital by the Proposed Acquirer/GOI is stated to enable the Target Company to meet the stipulated capital adequacy 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/GOI, subject to the conditions stated herein.

Order –

7. I, in exercise of the powers conferred upon me under Section 19 read with 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, hereby grant exemption to the Proposed Acquirer, viz. GOI, from complying with the requirements of Regulation 3(2) of the Takeover Regulations with respect to the proposed acquisition of 5.83% equity shares in the Target Company viz. Punjab National Bank during the Financial Year 2018–19, through the proposed preferential allotment as mentioned in the Application read with the Revised Application.

8. 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 GOI/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/GOI are true and correct.

9. 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.

10. The Application read with the Revised Application, as filed by Target Company on behalf of the Proposed Acquirer/GOI, is accordingly disposed of.

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

Place: Mumbai G. MAHALINGAM Date: October 30, 2018 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA