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

WTM/GM/CFD/103/2017–2018 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 UNION BANK OF INDIA ACQUIRER GOVERNMENT OF INDIA

BACKGROUND – 1.1 Union Bank of India (“Target Company”) is a Scheduled Commercial Bank having its Head Office at Union Bank Building, Central Office, 239, Backbay Reclamation, Post Box No. 93A, Nariman Point, Mumbai–400021. The Target Company was incorporated on November 11, 1919. 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 23, 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 Union Bank of India

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 ₹4524 Crores.

B. At the Board Meeting of the Target Company held on February 7, 2018, the Board of Directors approved raising of additional equity capital to the extent of ₹4524 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 31,28,19,803 equity shares of ₹10 each (aggregating ₹4524 Crores) to the Proposed Acquirer/Promoter, at an issue price of ₹144.62 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: BSE WEBSITE AND 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 43,61,06,597 47,50,94,778 31,28,19,803 78,79,14,581 AND PROMOTER [63.44%] [55.52%] [11.91%] [67.43%] GROUP B. PUBLIC 25,13,34,520 *38,06,58,800 – 38,06,58,800 SHAREHOLDING [36.56%] [44.48%] [32.57%] C. GRAND TOTAL 68,74,41,117 85,57,53,578 – 116,85,73,381 (A + B) [100%] [100%] [100%] * During the Financial Year 2017–18, the Target Company allotted 3,89,88,181 equity shares to the Government of India under Preferential basis on August 4, 2017, resulting in increase in shareholding of the Government of India from 63.44% to 65.40%. Consequently, the public shareholding in the Target Company decreased from 36.56% to 34.60%. In December 2017, the Target Company allotted 12,93,24,280 equity shares to QIBs thereby reducing the Proposed Acquirer/Promoter’s holding from 65.40% to 55.52%. Consequently, the public shareholding in the Target Company increased from 34.60% to 44.48%.

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. RAJKIRAN RAI G MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER 2. VINOD KATHURIA EXECUTIVE DIRECTOR 3. RAJ KAMAL VERMA EXECUTIVE DIRECTOR 4. ATUL KUMAR GOEL EXECUTIVE DIRECTOR 5. DR. MADNESH KUMAR MISHRA GOVT. NOMINEE DIRECTOR 6. ANIL KUMAR MISHRA RBI NOMINEE DIRECTOR 7. RAJIV KUMAR SINGH NOMINEE DIRECTOR 8. DR. K. RAMESHA NOMINEE DIRECTOR 9. DR. MADHURA SWAMINATHAN NOMINEE DIRECTOR 10. KEWAL HANDA NOMINEE DIRECTOR 11. DR. R. H. DHOLAKIA INDEPENDENT DIRECTOR 12. GOPAL KRISHAN LATH INDEPENDENT DIRECTOR 13. DR. UTTAM KUMAR SARKAR INDEPENDENT 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. “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 ₹4524 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. b. 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 290277 CET 1 20851 7.18 ADDITIONAL TIER I 4270 1.47 TIER I CAPITAL 25121 8.65 TIER II CAPITAL 7875 2.71 CRAR 32996 11.37 c. The issue of equity shares will be made by way of Preferential Allotment to the Government of India. d. The Bank is conducting an Extraordinary General Meeting for seeking approval of the shareholders for the proposed (Preferential Allotment) of upto 31,28,19,803 equity shares at a price of Rs. 144.62 per share aggregating Rs. 4524 Crores by way of Special Resolution. e. At the beginning of the Financial Year, Government of India was holding 43,61,06,597 shares i.e. 63.44%, in the Bank’s equity capital. During the Financial Year 2017–18, Bank allotted 3,89,88,181 equity shares to Government of India under Preferential Basis on August 4, 2017 resulting in increase in shareholding of Government of India from 63.44% to 65.40%. Subsequently, Bank allotted 12,93,24,280 equity shares to Qualified Institutional Buyers (“QIBs”) under

Qualified Institutional Placement on December 18, 2017. This resulted in decrease in shareholding of Qualified Institutional Buyers (“QIBs”) from 65.40% to 55.52%. f. Post the Preferential Allotment, Government of India’s shareholding (Promoter) will increase from 55.52% (as on date) to 67.43% (as on the date of the acquisition), which 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 along with 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 43,61,06,597 (63.44%) equity shares in the Target Company.

ii. During the Financial Year 2017–18, the Target Company allotted 3,89,88,181 equity shares to the Government of India under Preferential basis on August 4, 2017, resulting in increase in shareholding of the Government of India from 63.44% to 65.40%. Consequently, the public shareholding in the Target Company decreased from 36.56% to 34.60%.

iii. Subsequently, in December 2017, the Target Company allotted 12,93,24,280 equity shares to QIBs thereby reducing the Proposed Acquirer/Promoter’s holding from 65.40% to 55.52%. Consequently, the public shareholding in the Target Company increased from 34.60% to 44.48%.

iv. Subsequent to the proposed acquisition indicated at Table I of page 3 i.e. preferential allotment of 31,28,19,803 equity shares, the Proposed Acquirer/Promoter will hold 78,79,14,581 (67.43%) equity shares in the Target Company. Consequently, the public shareholding in the Target Company will decrease from 44.48% to 32.57%.

v. 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 11.91% during the Financial Year 2017–18 i.e. more than 5%, thereby attracting the provisions of Regulation 3(2) of the Takeover Regulations.

vi. The Target Company has taken into account the allotment of 12,93,24,280 equity shares in December 2017 during the Financial Year 2017–18 (decreasing Promoter’s holding from 63.44% to 55.52%) and also the preferential allotment under the proposed acquisition (increasing Promoter’s holding from 55.52% to 67.43%) while calculating the quantum of acquisition in the instant matter.

vii. 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 certain 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 11.91% equity shares and control in the Target Company viz. Union Bank of India 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 23, 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