Order in the matter of proposed acquisition of equity shares of Dena Bank

WTM/PS/68/CFD-DCR-1/DEC/2013

SECURITIES AND EXCHANGE BOARD OF INDIA ORDER In the matter of proposed acquisition of equity shares of Dena Bank - Application filed under regulation 11(1) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011

1. Dena Bank (hereinafter referred to as "the Target Company" or "the Bank") is a public sector bank, having its registered office at Dena Corporate Centre, C-10, G Block, Bandra Kurla Complex, Bandra East, Mumbai - 400051. The shares of the Bank are listed on the Bombay Stock Exchange Limited ("BSE") and the National Stock Exchange of India Limited ("NSE").

2. The Bank filed an application dated November 23, 2013 with the Securities and Exchange Board of India (hereinafter referred to as "the SEBI"), on behalf of its promoter, the Government of India (hereinafter referred to as "the GoI"), under regulation 11(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as "the Takeover Regulations"), seeking exemption for the GoI from the applicability of regulation 3(2) of the Takeover Regulations in respect of the proposed acquisition of 11.85 crore equity shares by the GoI through a proposed preferential allotment by the Bank. The following were inter alia submitted in the application :

(i) The authorised capital of the Bank is ₹ 3000 crore and the paid-up capital is ₹ 350.06 crore. Presently, the GoI is holding 19,33,85,874 shares i.e. 55.24% of the paid-up capital. (ii) During the year, the GoI has made a budgetary allocation of ₹ 14,000 crore for infusion of capital into the banks. Further, the GoI, through the Ministry of Finance, had vide letter dated October 22, 2013, conveyed its decision to infuse capital to the tune of ₹ 700 crore in the Bank against allotment of equity on preferential basis in favour of the GoI. (iii) Pursuant to the same, the Board of Directors of the Bank, in their meeting held on November 9, 2013, approved raising of equity capital to the extent of ₹ 700 crore by way of issue of equity shares in favour of the GoI on preferential basis subject to the approval of the Reserve Bank of India ("RBI"), the shareholders and other statutory authorities. An Extra-Ordinary General Meeting ("EGM") of the shareholders has been convened on December 24, 2013 to pass the necessary resolution for the proposed issue of the equity shares to the GoI on preferential basis. (iv) The relevant date has been taken as November 22, 2013 for ascertaining the issue price to arrive at the quantity of shares to be issued. The issue price of ₹ 59.03/- per equity shares is arrived at in terms of regulation 76(1) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 ("the ICDR Regulations"). Based on the issue price and the issue size of ₹700 crore, the total number of shares that would be allotted to the GoI would be 11,85,83,771 equity shares. Accordingly, the post issue shareholding of the GoI would be 31,19,69,644 equity shares (i.e. 66.57%). (v) As the difference between the pre-allotment and post-allotment shareholding of the GoI in the Bank may be over 5% (the shareholding of the GoI may increase from 55.24% to 66.57%, an increase of around 11.33% ), the GoI vide letter dated October 31, 2013 has advised the Bank to seek exemption (from SEBI) from the obligation of making an open offer stipulated under regulation 3(2) of the Takeover Regulations.

3. In the application, the following points were put forth as justification by the Bank for seeking exemption on behalf of the GoI from SEBI :

(i) GoI desires that all public sector banks should maintain minimum 8% Tier I Capital to Risk-weighted Assets Ratio (CRAR). (ii) The CRAR of the Bank under Basel II and III requirements are as under :

CRAR Basel II Basel III As on 31/03/2013 As on 01/04/2013 As on 30/09/2013 Tier I 7.26 6.96 6.78 Total 11.03 10.47 10.21

The Tier I CRAR of the Bank is below the desired 8% and hence the Bank requires capital infusion. Higher CRAR for the Bank is required to protect the interest of the depositors and in turn the economy. (iii) The infusion of capital by GoI is being made to comply with the Basel III requirements and there would no change in control in the management of the Bank. (iv) Even after infusion of capital by GoI, the public shareholding would be maintained at around 33.43%.

(v) Infusion of capital by GoI will also give the Bank additional leverage to raise further equity capital through Qualified Institutional Placement ('QIP')/Preferential issue to others at a later date, as and when the need arises.

4. I have considered the application of the Bank, the documents submitted therewith and those that were forwarded subsequently and other material available on record. The GoI is a shareholder of the Bank (i.e., the Target Company) under the category 'Promoter and Promoter Group'), and is the proposed acquirer. GoI presently holds 19,33,85,874 shares in the Target Company, which constitutes 55.24% of the total number of equity shares.

5. I note from the letter dated October 22, 2013 (letter from the Ministry of Finance, GoI to the Bank) that the GoI has decided to infuse capital to the tune of ₹ 700 crores into the Bank against preferential allotment of equity shares. The Board of Directors of the Bank have approved the raising of additional equity capital to the extent of ₹ 700 crore through the issue of equity shares in favour of GoI on preferential basis subject to the approval of RBI, the shareholders and other statutory authorities.

6. The Bank has fixed the 'relevant date' as November 22, 2013 and an EGM has been convened on December 24, 2013 for obtaining the shareholders' approval for the proposed allotment to the GoI. The issue price has been fixed at ₹59.03/- per equity share of ₹10/- each, in terms of regulation 76(1) of the ICDR Regulations, taking into consideration November 22, 2013 as the 'relevant date'. Accordingly, the Target Company has proposed to allot 11,85,83,771 fresh equity shares to the GoI on a preferential basis. The shareholding pattern in the Target Company, prior to and post the proposed allotment to the GoI, as mentioned in the application, is given below :

Shareholding pattern in the Target Company Category Before the proposed issue of equity Post issue of equity through proposed preferential issue to GoI No. of shares (in Percentage No. of shares (in Percentage lakhs) lakhs) Promoter Group (GoI) 1933.86 55.24 3119.69 66.57 FIs/banks 245.60 7.01 245.60 5.24 FIIs/NRIs/OCB 340.91 9.74 340.91 7.27 Public 980.22 28.01 980.22 20.92 Total 3500.59 100% 4686.42 100%

7. The proposed allotment to the GoI would increase the shareholding of the GoI from 55.24% to 66.57%. This resultant increase in the shareholding/voting rights of the GoI of around 11.33%, would trigger the provisions of regulation 3(2) of the Takeover Regulations. Therefore, the Bank on behalf of GoI, has sought exemption from the applicability of the said regulation.

8. The Target Company has submitted that the GoI desires that all public sector banks should maintain a minimum of 8% Tier I CRAR. The Bank has further submitted that it has not achieved the desired level of CRAR and that the infusion of capital by GoI is made in order to enable the Bank to comply with the 'Basel III' requirements. It is further submitted that infusion of capital by GoI will provide additional leverage to the Bank to raise further equity capital through QIP/Preferential issue at a later date, as and when the need arises.

9. It is also noted that pursuant to the proposed increase in the shareholding of GoI in the Bank, the minimum public shareholding as stipulated in rule 19A(3) of the Securities Contracts (Regulation) Rules, 1957, would be maintained, as the public shareholding would then be around 33.43%. Further, there would be no change in the management control in the Target Company.

10. Considering the proposed allotment of equity to the GoI in the light of the reasons stated by the Bank and the observations made above, I am of the considered view that this is a fit case to grant exemption under regulation 11 of the Takeover Regulations to the GoI from the obligation to make an open offer stipulated under regulation 3(2) of the Takeover Regulations with respect to its proposed increase of shares/voting rights from 55.24% to 66.57% in the Target Company, pursuant to proposed preferential issue and allotment of 11,85,83,771 equity shares.

11. In view of the foregoing, I, in exercise of the powers conferred upon me under section 19 of the Securities and Exchange Board of India Act, 1992 read with regulation 11(5) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, hereby grant exemption to the proposed acquirer, the Government of India, from complying with the requirements of regulation 3(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 with respect to its proposed acquisition of 11,85,83,771 shares by way of preferential allotment by the Target Company i.e., Dena Bank, against infusion of ₹ 700 crores by the Government of India, which may increase the shareholding/voting rights of the Government of India in the Target Company from 54.24% to 66.57%. The above exemption is subject to the following conditions :

(a) The proposed acquisition shall be in accordance with the relevant provisions of the Companies Act, 1956, the Companies Act, 2013, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, the Listing Agreement and all other applicable laws.

(b) The GoI/Target Company shall ensure compliance with the statements, disclosures and undertakings made in the application and in subsequent correspondence.

(c) The exemption is only limited to the requirements of making open offer under regulation 3(2) of the Takeover Regulations and shall not extend to other obligations (e.g. disclosure requirements under Chapter V of the said Takeover Regulations, Listing Agreement or any other law) of the GoI/Target Company.

12. Accordingly, the application dated November 23, 2013 filed by Dena Bank on behalf of the Government of India is disposed off.

PRASHANT SARAN WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

Date : December 19th, 2013 Place : Mumbai