Executive Summary:
SEBI circular SEBI/HO/CFD/DCR/CIR/P/2021/615, dated August 13, 2021, revises the mechanism for tendering shares in open offers, buyback offers, and delisting offers. The new mechanism involves marking a lien on shares in the shareholder's demat account instead of transferring shares to the Clearing Corporation. This revised process aims to reduce systematic risk and cost and will be applicable to all tender offers with a public announcement on or after October 15, 2021.
Key Points / Main Content:
Revised Tendering Mechanism:
* Instead of direct transfer of shares, a lien will be marked against shares tendered in open offers, buyback offers, and delisting offers.
* Upon entitlement finalization, only the accepted quantity of shares will be debited from the shareholder's demat account.
* Liens on unaccepted shares will be released.
Implementation:
* Stock Exchanges and Depositories must establish necessary infrastructure and systems for implementing the revised mechanism.
* Compliance with the circular's provisions is mandatory.
Applicability:
* The revised mechanism applies to all tender offers with a Public Announcement made on or after October 15, 2021.
Procedure Amendments:
Intra Depository Tender Offer Instructions:
* Depositories will mark a lien in the Beneficial Owner's Demat Account.
* Depositories will provide details of shares marked as lien to Clearing Corporations (CC).
* Issuer/Registrar to an Issue and Share Transfer Agent (RTA) will provide shareholder entitlement details to CCs.
* CC will cancel excess blocked securities, which will then become free balance in shareholder accounts.
* On the settlement date, all blocked shares mentioned in the accepted bid will be transferred to CCs.
Inter Depository Tender Offer (IDT) Instructions:
* Shares will be blocked in the shareholder's BO account at the source Depository during the tendering period.
* Shareholder initiates IDT instruction at source Depository to CM pool/CC account at target Depository.
* Source Depository blocks securities and sends IDT message to target Depository for lien confirmation.
* Target Depository provides blocked shares details to CCs.
* CC cancels excess blocked securities in target Depository.
* Source Depository releases excess quantity from shareholders' block balance to free balance upon receiving the IDT message from target Depository.
* Upon completion and receiving requisite details, the source depository debits accepted bid quantity from shareholders' blocked balance and credits it to the CC settlement account in the target Depository on settlement date.
* Extra quantity of shares not part of the accepted bid is reversed by the source depository, based on communication from target Depository, from the shareholders' blocked balance to free balance.
* Depositories, in coordination with stock exchanges and CCs, will make necessary system changes and ensure timely process updates.
Impact Analysis:
Stock Exchanges:
* Impact: Required to facilitate the new lien-based tendering process.
* Action Required: Establish necessary infrastructure and systems. Ensure compliance with the circular.
Registered Depositories:
* Impact: Responsible for marking and releasing liens on shares in demat accounts.
* Action Required: Modify systems and procedures to implement lien-based tendering. Coordinate with Stock Exchanges and Clearing Corporations.
Registered Stock Brokers:
* Impact: Need to understand and explain the new process to clients.
* Action Required: Familiarize themselves with the revised tendering mechanism.
Registered Merchant Bankers:
* Impact: Need to incorporate the new tendering process into offer documents.
* Action Required: Update procedures to align with the lien-based system.
Registered Registrars to an Issue and Share Transfer Agents:
* Impact: Responsible for providing shareholder entitlement details to Clearing Corporations.
* Action Required: Adjust processes to provide data compatible with the new system.
Registered Depository Participants:
* Impact: Interact directly with shareholders regarding lien marking and release.
* Action Required: Train staff and inform clients about the changes to the tendering process.
Clearing Corporations:
* Impact: Central role in managing the settlement of tendered shares under the new lien system.
* Action Required: Adapt systems to manage the lien-based tendering process and coordinate with Depositories and Stock Exchanges.
Shareholders:
* Impact: Benefit from a reduced risk and cost tendering process.
* Action Required: Understand the new lien-based tendering process.
Key Entities Referenced
Securities and Exchange Board of India (SEBI): The regulatory body issuing the circular regarding tendering of shares in open offers, buyback offers, and delisting offers.
SEBI Act, 1992: The Act under which SEBI exercises its powers, as referenced in the circular.
SEBI Substantial Acquisition of Shares and Takeovers Regulations, 2011: Regulations referenced in the circular pertaining to substantial acquisition of shares and takeovers.
SEBI Buyback of Securities Regulations, 2018: Regulations referenced in the circular pertaining to buyback of securities.
SEBI Delisting of Equity Shares Regulations, 2021: Regulations referenced in the circular pertaining to delisting of equity shares.
Recognized Stock Exchanges: Entities to whom the circular is addressed and who are responsible for implementing the mechanism described.
Registered Depositories: Entities to whom the circular is addressed and who are responsible for implementing the mechanism described.
Clearing Corporations (CC): Entities involved in the settlement of shares and processing of instructions related to tender offers.
CIRCULAR
SEBI/HO/CFD/DCR-III/CIR/P/2021/615
August 13, 2021
To
Recognized Stock Exchanges
Registered Depositories
Registered Stock Brokers
Registered Merchant Bankers
Registered Registrars to an Issue and Share Transfer Agents
Registered Depository Participants
Sir / Madam,
Subject: Tendering of shares in open offers, buy-back offers and delisting
offers by marking lien in the demat account of the shareholders.
1. SEBI, vide Circular No. CIR/CFD/POLICY CELL/1/2015, dated April 13,
2015 provided the mechanism for acquisition of shares through stock
exchange mechanism pursuant to tender offers for the purpose of
takeovers, buy back and delisting of securities. Subsequently, SEBI vide
Circular No. CFD/DCR2/CIR/P/2016/131, dated December 09, 2016
streamlined the said mechanism.
2. Under the existing mechanism, the shares tendered by the shareholders are
required to be directly transferred to the account maintained by the Clearing
Corporation and different tendering processes are being adopted by
Depositories. Such transfer involves systematic risk, substantial time and
cost.
3. In consultation with Depositories, Clearing Corporations and Stock
Exchanges, it has been decided that a lien shall be marked against the
shares of the shareholders participating in the tender offers. Upon
finalization of the entitlement, only accepted quantity of shares shall be
debited from the demat account of the shareholders. The lien marked
against unaccepted shares shall be released. The detailed procedure for
tendering and settlement of shares under the revised mechanism is
specified in the Annexure. All other procedures shall remain unchanged.
4. The aforesaid measures reduce the systematic risk and risks associated with
the movement of securities from demat account of shareholders to Clearing
Corporation account, vice-versa and make the process more investor friendly.5. The said revised mechanism shall be applicable to all the tender offers for
which Public Announcement is made on or after October 15, 2021.
6. Stock Exchanges and Depositories shall take necessary steps and put in
place necessary infrastructure and systems for implementation of the
mechanism and ensure compliance with the provisions of this Circular.
7. This Circular is being issued in exercise of the powers conferred under
section 11(1) of the Securities and Exchange Board of India Act, 1992 read
with regulation 18(6A) of SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011, regulation 9(iii) of SEBI (Buy-back of
Securities) Regulations, 2018 and regulation 17(2) and regulation 18 of
SEBI (Delisting of Equity Shares) Regulations, 2021.
8. A copy of this Circular is available on SEBI website at www.sebi.gov.in
under the categories “Legal Framework > Circulars”.
Yours faithfully,
T. Venkateshwarlu
Deputy General Manager
Division of Corporate Restructuring
Corporation Finance Department
Email ID: venkateshwarlut@sebi.gov.in
Phone +91-22-26449223Annexure
Amendments to procedure for tendering and settlement of shares through
Stock Exchange
a) Changes in respect of Intra Depository - Tender Offer Instructions (within
Depository):
i) The lien shall be marked in the depository system by the Depositories in the
Beneficial Owner’s Demat Account for the shares offered in tender offers.
ii) Details of shares marked as lien in clients’ demat account shall be provided by
respective Depositories to Clearing Corporations (CC).
iii) Details in respect of shareholder’s entitlement for tender offer process shall be
provided to CCs by Issuer / Registrar to an Issue and Share Transfer Agent
(RTA) handling respective tender offer.
iv) CC will cancel excess blocked securities and securities shall become free
balance in shareholder’s account.
v) On settlement date, all blocked shares mentioned in accepted bid shall be
transferred to CCs.
b) Changes in respect of Inter Depository Tender Offer (IDT) Instructions:
i) In case of Client BO account is held with one Depository and CM pool and CC
account are held with other Depository, shares shall be blocked in
shareholder’s BO account at source Depository, during the tendering period.
ii) IDT instruction shall be initiated by shareholder at source Depository to CM
pool/ CC account at target Depository. Source Depository shall block the
shareholder’s securities (i.e. transfers from free balance to blocked balance)
and sends IDT message to target Depository for confirming creation of lien.
iii) Details of shares blocked in shareholder’s demat account shall be provided by
target Depository to CCs.
iv) CC shall cancel excess blocked securities in target Depository. Source
Depository shall not be able to release lien without a release of IDT message
from target Depository. Further, release of IDT message shall be sent by target
Depository either based on cancellation request received from CCs or
automatically generated after matching with Bid accepted detail as received
from CCs / Issuer / RTAs.
v) Post receiving the IDT message from target Depository, source Depository shall
release excess quantity from shareholder’s block balance to free balance. The
CC, if any, shall be processed by source Depository and any increase in
quantity or substitute ISIN shall be communicated to target depository in IDT
message.vi) Post completion of tendering period and receiving the requisite details viz.,
demat account details and accepted bid quantity in respect of receiving
entitlement details of securities of tender offer from CC, source depository shall
debit the securities as per the communication/message received from target
Depository to the extent of accepted bid quantity from shareholder’s blocked
balance and credit it to CC settlement account in target Depository on
settlement date.
vii) All extra quantity of shares which are not a part of accepted bid data provided
by CCs shall be reversed by source depository based on the
communication/message received from target Depository from the
shareholders blocked balance and shall be credited in the free balance of
respective demat accounts.
viii) Depositories in coordination with stock exchanges and CCs shall make
necessary changes in their system and ensure timely updation of the
processes, as and when required.
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