Let's know about SEBI's SAST Regulations and its relevance!
Introduction to SEBI SAST Regulations 2011
SAST stands for substantial acquisition of shares & takeovers. Securities & Exchange Board of India (SEBI) states the rules and regulations for the acquisition of stake in another listed company.
What does the regulation framework state?
SEBI SAST Regulations, 2011 states that an acquirer cannot buy any additional stake in the target company if it gives voting rights of beyond 25 per cent and over 5 per cent more voting rights in a financial year. If an acquirer (an individual or a group of individuals) wants an acquisition beyond the prescribed limit, it has to be done by making an open offer publicly. An open offer is an opportunity given by the acquirer to the existing shareholders of the target company to sell their stake to the acquirer. And the price at which this transaction will take place is decided by SEBI appointee. Thus, SEBI ensures fairness in the entire process.
Amendments in the regulation
SAST (Amendment) Regulations, 2020
After considering the changes in the financial position of the companies due to the pandemic, SEBI made an amendment in SAST Regulations. As per the amendment, an acquirer could buy additional shares beyond the 5 per cent limit but not more 10 per cent in a target company, subject to some conditions. The conditions were such that the acquirer had to be the promoter of the company and the shares purchased had to be preferential shares. This amendment was limited only for a period of one year (FY20-21). Within this period, the acquirer could buy additional stake without making a public announcement of an open offer.
SAST (Amendment) Regulations, 2021-
As per the latest amendment, if the target company has listed its specified securities on innovators’ growth platform, the acquisition limit of 25 per cent will be extended to 49 per cent. Similarly, the acquisition limit of 5 per cent voting rights in a financial year has been extended to 10 per cent. In addition to this, the voting pattern of the meeting in which the open offer proposal takes place, shall be disclosed by the company.
Why is the regulation important?
Any substantial acquisition done by a company may result in the conflict of interest with the minority shareholders, change in company policies and way of governance that may not be in its interest. The regulation aims to prevent hostile takeovers and protect the interest of minority shareholders. This ensures that no undue advantage is taken by the majority shareholders. It makes the entire process fair and in the interest of the company.