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

WTM/GM/CFD/106 /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 SYNDICATE BANK ACQUIRER GOVERNMENT OF INDIA

BACKGROUND – 1.1 Syndicate Bank (“Target Company”) is a Scheduled Commercial Bank having its Head Office at Manipal–576104, Karnataka and Corporate Office at II Cross, Syndicate Bank Building, Gandhinagar, Bengaluru–560009. The Target Company was incorporated on October 25, 1925. 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 22, 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 Syndicate 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, 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 ₹2839 Crores.

B. At the Board Meeting of the Target Company held on February 2, 2018, the Board of Directors approved raising of additional equity capital to the extent of ₹2839 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 is proposed to be held on March 16, 2018, for obtaining the requisite approval/special resolution for the proposed acquisition.

D. The Target Company has decided to issue 37,59,76,691 equity shares of face value ₹10 each (aggregating ₹2839 Crores) to the Proposed Acquirer/Promoter, at an issue price of ₹75.51 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 (i) March 31, 2017; (ii) prior to the proposed acquisition and (iii) subsequent to the proposed acquisition, is provided as under –

TABLE I – SHAREHOLDING IN THE TARGET COMPANY (SOURCE: APPLICATION)

CATEGORY AS ON 31.03.2017 PRIOR TO PROPOSED SUBSEQUENT TO PROPOSED ACQUISITION PROPOSED ALLOTMENT ALLOTMENT NO. OF SHARES NO. OF SHARES NO. OF NO. OF SHARES AND % AND % SHARES AND % AND % A. PROMOTER 65,95,62,697 65,95,62,697 37,59,76,691 103,55,39,388 AND PROMOTER [72.92%] [63.34%] [9.73%] [73.07%] GROUP B. PUBLIC 24,49,76,741 *38,17,32,665 – 38,17,32,665 SHAREHOLDING [27.08%] [36.66%] [26.93%] C. GRAND TOTAL 90,45,39,438 104,12,95,362 – 141,72,72,053 (A + B) [100%] [100%] [100%] * In December 2017, the Target Company allotted 13,67,55,924 equity shares to Qualified Institutional Buyers thereby reducing the Proposed Acquirer/Promoter’s holding from 72.92% to 63.34%. Consequently, the public shareholding in the Target Company increased from 27.08% to 36.66%.

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. AJAY VIPIN NANAVATI NON-EXECUTIVE CHAIRMAN – INDEPENDENT 2. MELWYN REGO MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER 3. CH S. S. MALLIKARJUNA RAO EXECUTIVE DIRECTOR 4. S. KRISHNAN EXECUTIVE DIRECTOR 5. JAYANT PURSHOTTAM GOKHALE NOMINEE DIRECTOR – INDEPENDENT [CA CATEGORY] 6. VANDANA KUMARI JENA NOMINEE DIRECTOR – INDEPENDENT 7. G. RAMESH NOMINEE DIRECTOR – INDEPENDENT 8. R. N. DUBEY GOVT. NOMINEE DIRECTOR – INDEPENDENT 9. KAMAL KISHORE SINGHAL SHAREHOLDER DIRECTOR 10. SUNIL VASHISHT 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 – a. “The Capital Fund to Risk Weighted Assets (“RWA”) as on December 31, 2017, under BASEL III, was as under – PARTICULARS AMOUNT % OF CAPITAL FUNDS TO RISK AS ON 31.03.2017 (IN ₹CRORES) WEIGHTED ASSET RISK WEIGHTED ASSETS 1,86,837.72 TIER I CAPITAL 16,918.78 9.06 TIER II CAPITAL 5275.18 2.82 TOTAL CAPITAL 22,193.96 11.88 b. Considering the business forecast, the higher provisioning requirements on account of references to large ticket NPA accounts to NCLT for resolution under the insolvency & 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 select persons or group of persons including financial institutions apart from other avenues of raising capital. c. 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 ₹2839 Crores in the equity capital of the Bank of way of Preferential Allotment subject to fulfillment of certain criteria, aimed at  Meeting regulatory capital norms, in terms of the minimum Common Equity Tier 1 (CET 1) and Capital Buffer requirements, subject to the Bank’s performance in carrying out the terms of this Undertaking to Government of India satisfaction, and  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 Government of India satisfaction. d. The entire Preferential Allotment is being made to the Government of India for cash. e. The Bank is conducting an Extraordinary General Meeting for seeking approval of the shareholders for the proposed Preferential Allotment.

f. Post the Preferential Allotment, Government of India’s shareholding (Promoter) will increase from 63.34% (as on 31.12.2017) to 73.07% (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 provisions of Regulation 3(2) of the Takeover Regulations. g. Thus … the application is being preferred.”

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 as under – i. From Table I of page 3, it is observed that as on March 31, 2017, the Proposed Acquirer/Promoter i.e. the Government of India, held 65,95,62,697 equity shares (72.92%) in the Target Company.

ii. During the Financial Year 2017–18 i.e. in December 2017, the Target Company allotted 13,67,55,924 equity shares to Qualified Institutional Buyers (“QIBs”) thereby reducing the Proposed Acquirer/Promoter’s holding from 72.92% to 63.34%. Consequently, the public shareholding in the Target Company increased from 27.08% to 36.66%.

iii. Subsequent to the proposed acquisition indicated at Table I of page 3 i.e. preferential allotment of 37,59,76,691 equity shares, the Proposed Acquirer/Promoter will hold 103,55,39,388 equity shares (73.07%) in the Target Company. Consequently, the public shareholding in the Target Company will decrease from 36.66% to 26.93%.

iv. The resultant change in shareholding on account of the allotments indicated at paragraph (ii)– (iii) above, will increase the concentration of the Proposed Acquirer/Promoter/ Government shareholding in the Target Company by 9.73% during the Financial Year 2017–18 i.e. more than 5%, thereby attracting the provisions of Regulation 3(2) of the Takeover Regulations.

v. The Target Company has taken into account the allotment of 13,67,55,924 equity shares in December 2017 during the Financial Year 2017–18 (decreasing Promoter’s holding from 72.92% to 63.34%) and also the preferential allotment under the proposed acquisition (increasing Promoter’s holding from 63.34% to 73.07%) while calculating the quantum of acquisition in the instant matter.

vi. 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 holding the shares 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 9.73% equity shares in the Target Company viz. Syndicate 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.

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 22, 2018, filed by Target Company on behalf of the Proposed Acquirer/Promoter, is accordingly disposed of.

Place: Mumbai G. MAHALINGAM Date: March 19, 2018 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA