Exemption order under Regulation 11 of SEBI (SAST) Regulations, 2011 in the matter of Corporation Bank Ltd

WTM/GM/CFD/118 /2017–2018 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 CORPORATION BANK ACQUIRER GOVERNMENT OF INDIA

BACKGROUND – 1.1 Corporation Bank (“Target Company”) is a Scheduled Commercial Bank having its Head Office at Mangala Devi Temple Road, Pandeshwar, Mangaluru–575001. The Target Company was incorporated on 28th May 1906 as a company and nationalized on 15th April 1980. The shares of the Target Company are listed on the BSE Limited (“BSE”) and the National Stock Exchange of India Limited (“NSE”).

1.2 The Target Company filed an application dated February 16, 2018 (“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:

Order in the matter of Corporation 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.”

1.4 From the aforesaid Application and the e–mail dated March 5, 2018, as submitted by the Target Company, the following is noted –

A. Vide a letter dated January 24, 2018, the Government of India proposed an infusion of capital in the Target Company, amounting to ` 2187 Crores.

B. At the Board Meeting of the Target Company held on February 12, 2018, the Board of Directors approved raising of additional equity capital to the extent of ` 2187 Crores by way of issue of equity shares on a preferential basis to the Proposed Acquirer/Promoter i.e. the Government of India (“Proposed Acquisition”).

C. An Extra–Ordinary General Meeting (“EGM”) of shareholders in the Target Company was held on March 13, 2018, for obtaining the requisite approval/special resolution for the proposed acquisition. The aforesaid approval was obtained on that date.

D. The Target Company has decided to issue 51,84,92,176 equity shares of face value ` 2 each (aggregating ` 2187 Crores) to the Proposed Acquirer/Promoter, at an issue price of ` 42.18 as determined under Regulation 76(1) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (“ICDR Regulations”).

E. The shareholding pattern in the Target Company as on March 31, 2017 and the shareholding pattern subsequent to the proposed acquisition, is provided as under – TABLE I – SHAREHOLDING IN THE TARGET COMPANY (SOURCE: APPLICATION) CATEGORY AS ON 31.03.2017 PROPOSED SUBSEQUENT TO ACQUISITION PROPOSED ALLOTMENT NO. OF SHARES NO. OF SHARES NO. OF SHARES AND % AND % A. PROMOTER AND PROMOTER 81,17,12,250 51,84,92,176 133,02,04,426 GROUP [70.76%] [9.11%] [79.87%] B. PUBLIC SHAREHOLDING 33,53,44,193 – 33,53,44,193 [29.24%] [20.13%] C. GRAND TOTAL (A + B) 114,70,56,443 – 166,55,48,619 [100%] [100%]

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. JAI KUMAR GARG EXECUTIVE (MANAGING DIRECTOR AND CEO) 2. GOPAL MURLI BHAGAT EXECUTIVE (EXECUTIVE DIRECTOR) 3. MANISH GUPTA NOMINEE (GOVT. OF INDIA NOMINEE DIRECTOR) 4. PRADYUMNA K. JENA NOMINEE (RBI NOMINEE DIRECTOR) 5. K. SRINIVASA MURTHY INDEPENDENT(NON-OFFICIAL PART TIME DIRECTOR UNDER CHARTERED ACCOUNTANT CATEGORY) 6. DEVERAKONDA DIPTIVILASA INDEPENDENT (NON-OFFICIAL PART TIME DIRECTOR) 7. PRADEEP KUMAR JAIN INDEPENDENT (SHAREHOLDER DIRECTOR) 8. CHITRA GOURI LAL INDEPENDENT (SHAREHOLDER DIRECTOR)

G. 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.

From the Application filed on behalf of the Proposed Acquirer/Promoter and the e–mail dated March 5, 2018 as submitted by the Target Company, the following is observed – a) To enable the Bank to meet regulatory requirement of capital under Basel III guidelines for 2017-18 as per the projections made by the Bank, the Govt. of India vide their letter no. F. No. 7/38/2014-BOA dated 24th January 2018 has decided to infuse capital funds during Financial Year 201 7-18 into the Bank to the extent of ` 2187 crores. b) In terms of the aforesaid letter, the Bank shall be required to commit to reforms agenda for Responsive and Responsible PSBs aimed at Enhanced Access and Service Excellence (EASE) covering customer responsiveness, responsible banking, credit off-take, PSBs as Udyamimitra (aimed at MSME), deepening financial inclusion and digitization and ensuring outcome (HR) by developing personnel for Brand PSB etc. c) 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 may be decided by the Board and also to comply with BASEL-III requirements relating to capital adequacy, the Bank proposes to raise funds by way of Preferential issue upto 51,84,92,176 equity shares at a price of Rs.42.18 to the Government of India. d) The Bank has conducted an Extraordinary General Meeting on March 13, 2018 for seeking approval of the Members for the proposed issue and allotment of up to 51,84,92,176 equity shares aggregating Rs.2187 crore by way of Special Resolution.

e) Post the preferential allotment, GOI's shareholding (the promoter) will increase from 70.76 % (as on 1st April 2017) to 79.87 %, (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 (2017-1 8) attracting the provision of Regulation 3(2) SAST Regulations, 2011. f) 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 Institution Placement (QIP) at a later date as and when the need arises, subject to necessary approvals from the Government of India and other regulatory authorities. 1.5 Vide e–mail dated March 5, 2018, SEBI sought clarification from the Target Company regarding compliance with minimum public shareholding requirements in terms of Securities Contracts (Regulation) Rules, 1957.

1.6 The Department of Financial Services, Ministry of Finance, Govt. of India, vide letter dated March 28, 2018 have declared that the Govt. of India, being promoter of the Bank will comply with minimum public shareholding requirements in terms of Securities Contracts (Regulation) (Third Amendment) Rules, 2017 in due course of time.

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 as under – i. From Table I it is observed that prior to the Proposed Acquisition, the Proposed Acquirer/Promoter i.e. the Government of India, held 81,17,12,250 (70.76%) equity shares in the Target Company.

ii. Subsequent to the proposed acquisition indicated at Table I i.e. preferential allotment of 51,84,92,176 equity shares, the Proposed Acquirer/Promoter will hold 133,02,04,426 (79.87%) equity shares in the Target Company. Consequently, the public shareholding in the Target Company will decrease from 29.24% to 20.13%.

iii. The Govt. of India, being promoter of the Bank have declared that they will comply with minimum public shareholding requirements in terms of Securities Contracts (Regulation) (Third Amendment) Rules, 2017 in due course of time.

iv. The resultant change in shareholding on account of the allotment indicated at sub-paragraph (ii) above, will increase the concentration of the Proposed Acquirer/Promoter/ Government shareholding in the Target Company by 9.11 % during the Financial Year 2017–18 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/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 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 the conditions stated herein.

Order –

3.1 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. the Government of India, from complying with the requirements of Regulation 3(2) of the Takeover Regulations with respect to the proposed acquisition of 9.11 % equity shares in the Target Company viz. Corporation Bank during the Financial Year 2017–18, through 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 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 and the Listing Agreement/SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

3.4 The Application dated February 16, 2018, 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: March 28, 2018 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA