Exemption order under regulation 11 of SEBI (SAST) Regulations, 2011 in the matter of “ Andhra Bank"

WTM/GM/CFD/115 /2017–2018 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 ANDHRA BANK.

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

1.2 The Target Company filed an application dated February 15, 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: 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 January 24, 2018, the Government of India proposed an infusion of capital in the Target Company, amounting to ₹1890 Crores by way of preferential allotment of equity shares in favour of Government of India. (hereinafter referred to as "Proposed acquisition")

B. At the Board Meeting of the Target Company held on February 08, 2018, the Board of Directors approved raising of additional equity capital to the extent of ₹1890 Crores by way of issue of equity shares on a preferential basis to the Proposed Acquirer/Promoter.

C. An Extra–Ordinary General Meeting (“EGM”) of shareholders in the Target Company was held on March 12, 2018, wherein necessary special resolution for issue and allotment of shares to the Proposed Acquirer/Promoter on preferential basis was approved. The issue price per equity share has been arrived at ₹57.97, in accordance with Regulation 76(1) of (Issue of Capital and Disclosure Requirements) Regulations, 2009 (“ICDR Regulations”). Based on the issue size of ₹1890 Crores and issue price of ₹57.97, the total number of equity shares to be allotted to the Proposed Acquirer/Promoter is 32,60,30,705 of face value ₹10 each.

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

TABLE I – SHAREHOLDING IN THE TARGET COMPANY (SOURCE: APPLICATION AND BSE WEBSITE) CATEGORY AS ON PRIOR TO SUBSEQUENT 31.03.2017 PROPOSED TO ALLOTMENT PROPOSED ALLOTMENT NO. OF NO. OF NO. OF SHARES AND SHARES AND SHARES AND % % % A. PROMOTER AND 41,73,10,282 60,89,47,912 93,49,78,617 PROMOTER GROUP [61.26%] [69.77%] [77.99%] (please refer to ii. below) B. FINANCIAL 26,38,53,210 26,38,53,210 26,38,53,210 INSTITUTIONS/BAN [38.74%] [30.23%] [22.01%] KS/ FOREIGN PORTFOLIO INVESTORS/ NON RESIDENT INDIANS/OVERSEAS CORPORATE

BODIES/ OTHER PUBLIC SHAREHOLDERS C. GRAND TOTAL (A + 68,11,63,492 68,11,63,492 119,88,31,827 B) [100%] [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. During the Financial Year 2017-18, preferential allotment of 19,16,37,630 shares was made to Government of India increasing their holding to 69.77%, pursuant to an exemption order passed by SEBI on May 17, 2017. iii. Subsequent to the proposed acquisition i.e. preferential allotment of 32,60,30,705 equity shares, the Proposed Acquirer/Promoter will hold 93,49,78,617 equity shares (77.99%) in the Target Company.

E. The resultant change in shareholding, on account of the allotment indicated at paragraph D above, is likely to increase the concentration of the Proposed Acquirer/Promoter/Government shareholding in the Target Company by 8.22% i.e. more than 5%, thereby attracting the provisions of Regulation 3(2) of the Takeover Regulations.

F. 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. SHRI AJIT KUMAR RATH EXECUTIVE DIRECTOR 2. KUL BHUSHAN JAIN EXECUTIVE DIRECTOR 3. Ms. ANJANA DUBE MINISTRY OF FINANCE NOMINEE DIRECTOR 4. SHRI E. E. KARTHAK RESERVE BANK OF INDIA NOMINEE DIRECTOR 5. SHRI BALGOPAL MAHAPATRA CA DIRECTOR 6. SHRI A. KRISHNAKUMAR SHAREHOLDER DIRECTOR 7. SHRI G. SIVAKUMAR 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.

In its Application on behalf of the Proposed Acquirer/Promoter, the Target Company inter alia submitted as under – " As of December, 2017 under Basel-III normss the Bank had Tier-I capital of Rs. 13562.33 crore and Tier-II capital of Rs. 5714.08 crore against the total Risk Weighted Assets (RWA) of Rs. 158426.65 crore. The Tier-I ratio was 8.56%, Tier-II ratio was 3.61% and overall CRAR was 12.17 %. The Capital Fund to Risk Weighted Assets as of 31st December, 2017 under Basel-III was as under-

Particulars Amount % of capital funds to (As on 31-12.2017) ( Rs. in Crores) risk weighted asset Risk Weighted Assets 158426.65 Tier-I Capital 13562.33 8.56% Tier-II Capital 5714.08 3.61% Total Capital 19276.41 12.17%

Considering the business forecast, the higher provisioning requirements on account of references of large ticket NPA accounts to NCLT for resolution under the lnsolvency & Bankruptcy Code along with migration & fresh slippages and the need for strengthening the Bank's capital base to support the envisaged business for FY-18 and to ensure compliance to all applicable capital norms under BASEL – III regime, it has become necessary for the Bank to raise equity capital through Preferential Allotment in favour of the Government of India and/or other select persons or group of persons including financial institutions apart from other avenues of raising capital. The Government of India vide their letter F.No.7/38/2014 – BOA dated 24.01.2018 communicated its intention to infuse capital to the extent of Rs. 1890 crore in the equity capital of the Bank by way of Preferential Allotment subject to fulfillment of certain criteria, aimed at: a. Meeting regulatory capital norms, in terms of the minimum Common Equity Tier 1 (CET1) and Capital Buffer requirements, subject to the Bank’s performance in carrying out the terms of this Undertaking to GoI satisfaction; and b. Augmenting growth capital for enhanced credit off-take – i. In FY 2017-18, and ii. In FY 2018-19 assuming such RWA growth as it is decided by the Department of Financial Services after discussion with the Bank, subject to the Bank’s performance in carrying out the terms of this Undertaking to GoI’s satisfaction. This entire preferential issue is being allotted to Government of India for cash.

The capital raised would be utilized for the purpose of shoring up of the Common Equity and Tier – I capital of the Bank. The Bank is conducting an Extraordinary General Meeting for seeking approval of the Members for the proposed issue and allotment of upto 32,60,30,705 (Thirty Two Crores Sixty lakhs Thirty Thousand Seven Hundred Five ) equity shares of Rs.10/- each to the President of India acting on behalf of the Government of India at Rs. 57.97 per share including a premium of Rs. 47.97 per share determined in accordance with Regulation 76(1) under Chapter VII of the SEBI ICDR Regulations aggregating up to Rs. 1890 crore (Rupees One Thousand Eight Hundred Ninety Crore) for cash on preferential basis. Post the preferential allotment, GOI’s shareholding (the promoter) will increase from 69.7694 % (as on 31st December 2017) to 77.9908 %, (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 (2017-18) attracting the provision of Regulation 3(2) of SEBI (Substantial Acquisition of Shares and Takeovers), Regulations ,2011, as amended. Thus, 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 March 07, 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 In reply to the abovementioned e–mail, the Government of India, vide a letter dated March 21, 2018, informed as under: “Based on the declaration given by Andhra Bank, the Department of Financial Services, Ministry of Finance, Govt. of India, being the promoter of the company declares that Andhra Bank will comply with minimum Public shareholding (MPS) requirements in terms of Securities Contracts (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 alongwith other relevant material available on record. In this regard, I note – i. From Table I it is seen that as on March 31, 2017 the Proposed Acquirer/Promoter held 41,73,10,282 shares constituting 61.26% of the share capital. During the FY 2017-18, The Target Company made a preferential allotment to the Government of India (Proposed Acquirer) thereby increasing the Proposed Acquirers holding to 69.77%.

ii. The Proposed acquisition indicated at Table I will result in the Proposed Acquirer/Promoter holding 93,49,78,617 shares amounting to 77.99% of the share capital. Therefore the said acquisition will result in an increase in the Proposed Acquirer/Promoters shareholding in the Target Company by 8.22% 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 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 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 8.22% equity shares, 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.

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; Listing Agreement/SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 or any other applicable Acts, Rules and Regulations.

3.4 The Application dated February 15, 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