Mumbai: The future of Satyam Computer Services Ltd, the fraud-hit software services company, became clearer on Monday with the country’s stock market regulator agreeing to amend take-over laws—a move that will benefit the company and also other companies that find themselves in a similar situation in the future.
It will also help suitors for such companies. Soon after the decision by the Securities and Exchange Board of India, or Sebi, television channel CNBC TV18 reported that engineering firm Larsen and Toubro Ltd (L&T), which owns around a 12% stake in Satyam and is the single largest shareholder in the firm, could consider increasing its stake to 15%, a level that will, in keeping with Indian law, trigger an open offer to shareholders for another 20% stake in the company. Mint couldn’t independently confirm whether L&T indeed wishes to do this.
Also See Pledging of Shares (Graphic)
In a related development, after spending weeks trying to gain access to Satyam’s founder and former chairman B. Ramalinga Raju for questioning, Sebi approached the Supreme Court seeking permission to interrogate him. Raju revealed on 7 January that he had, over the years, fudged the company’s accounts to the extent of at least Rs7,136 crore. He, and his brother and the company’s managing director Rama Raju and Satyam’s former CFO Srinivas Vadlamani were arrested later. The three Satyam executives are in police custody and Sebi has been unable to question them.
The right price
Sebi on Monday said it has decided to reduce the period considered for arriving at the average price of shares in so-called open offers.
It did not specify what the new period would be or when the new norm would come into effect. According to the existing pricing formula, open offers have to be made at the average price of the share over the preceding 26 weeks, or two weeks, whichever is higher.
Sebi’s decision comes after it received a request from the board of the tainted Satyam Computer Sevices, reconstituted by the government, for exemption from certain provisions of the takeover norms, known as substantial acquisition of shares and takeovers (SAST) regulations. “We recognize the need for this and will look to make amendments for such special cases,” Sebi chairman C.B. Bhave said at a press conference.
“The board (of Sebi) recognized the special circumstances that have arisen in the affairs of the company (Satyam) and concluded that the issue needs to be dealt with in the general context,” Sebi said in a statement. Satyam’s shares have slumped after Raju’s revelation of the fraud.
“(The) Satyam case is definitely the catalyst, but the step is positive for all the promoters as applying the Sebi formula resulted in very high prices on open offers after the massive drop in prices,” said the head of equity capital markets at a large domestic investment bank, who didn’t want to be identified.
Satyam shares gained 6.5% to Rs57.60 on Monday’s trade. The shares had fallen to Rs24.45 two weeks earlier, from Rs226 six months ago. According to existing takeover rules, any open offer for Satyam shares would have to be priced at the six-month average price of Rs263.
“Satyam’s smooth sale is good for shareholders, whatever be the open-offer price. At least the shares will remain liquid,” said the head of research at a foreign brokerage, who too didn’t want to be identified.
“From the perspective of a potential acquirer, it is a very good move as otherwise Satyam could be an unattractive target, especially given the uncertainty about the assets and liabilities of the company in the absence of restated accounts,” said Tarun Sisodia, director at Mumbai-based Anand Rathi Financial Services Ltd. He added that it could be a negative development for retail shareholders, who have seen the price dipping ever since 16 December.
The Satyam affair began on 16 December when the company’s board cleared the acquisition of Maytas Infra Ltd and Maytas Properties Ltd. But it changed its mind after shareholders and investors protested. Satyam subsequently appointed DSP Merrill Lynch to find ways to help it improve its valuation which had eroded significantly in the aftermath of the decision. In early January, Merrill Lynch wrote to regulatory agencies about “material differences” it had found in Satyam’s books. Raju went public with his revelation a day later.
The government has since dismissed Satyam’s old board and apppointed a new one that is looking to appoint a CEO and CFO. It has also initiated an enquiry, through the apex body of chartered accountants, into Satyam’s former audit Price Waterhouse, part of audit and consulting firm PricewaterhouseCoopers.
On Monday, the country’s company affairs minister Prem Chand Gupta said he had ordered the inspection of accounts of some state-owned and non-state companies for greater transparency after the Satyam fraud.
He declined to name the companies.
Another minister, Ashwani Kumar, the country’s junior minister for finance, said government agencies would probe the role of Maytas Infra, a company promoted by the Raju family, in the Satyam fraud and that suitable action would be taken against the company if required.
In another development, Sebi also decided to increase the stakes at play for promoters making preferential allotments. The board said promoters would have to pay 25% upfront instead of 10% mandated by current norms to issue preferential warrants. This amount will be forfeited if the warrant is not exercised in 18 months.
On 26 January, Mint reported that four key executives of India Infoline Ltd lost Rs10 crore because they failed to exercise the warrants.
“In some cases, there were demands that people be allowed to either reset the price of the warrant conversion or they be allowed time period of more than 18 months. There is, however, no resetting of price or time period. The staus quo continues,” Bhave said.
Sebi also reduced the time frame for announcing the price band for initial public offerings to two working days prior to the opening of the issue, from the earlier two to three weeks.
This step was taken “given the current volatile conditions in the market, as well as our drive towards overall reduction in time scale”, said Bhave.
Sebi has also made it mandatory for listed companies to declare dividends on a per-share basis.
“There is a practise of some people declaring it on per share basis and some on percentage basis. If the face value of share is different, then the percentage basis creates confusion in the minds of investors,” said Bhave.
Sebi also decided to reduce the time frame for bonus issues where free shares are issued for every one held. “It has been decided that in cases where the shareholders approval is not required as per the articles of association it should be completed within 15 days, and where the shareholders approval has to be got by the company the process will be completed in 60 days time,” Bhave said. Currently, companies have six months to complete their bonus isssue from the date of the board approving these.
Graphics by Sandeep Bhatnagar / Mint
Khushboo Narayan and C.R. Sukumar, PTI and Bloomberg contributed to this story