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Revised takeover code, Jalan committee report face delay

April 06, 2011 10:10 IST

It is now clear that the revised takeover code and the Bimal Jalan committee report will not be implemented soon and in the same form, since the finance ministry wants to seek industry views on these two sets of recommendations this month, before the market regulator could take a decision.

A section of industry has criticised the Jalan panel report for its opposition to listing of stock exchanges and the revised takeover code recommendations for making acquisitions costlier, among other issues.

It was expected the two issues would be on top of the agenda of new Securities and Exchange Board of India (Sebi) Chairman U K Sinha.

While the capital markets division in the finance ministry would hold consultations on the Jalan panel report, Chief Economic Advisor Kaushik Basu would have interactions on the revised takeover code.

Both would happen this month, officials said.

In a clear indication that the Jalan panel report might be tweaked, a key official said, "Nowhere in the world are reports suggested by committees implemented in toto."

A committee set up by Sebi on the takeover code had recommended raising the trigger for open offer to 25 per cent from the current 15 per cent.

A panel headed by the former presiding officer of the Securities Appellate Tribunal (SAT), C Achuthan, also proposed to raise the statutory open offer size to 100 per cent.

The proposal on 100 per cent open offer may make it difficult for local players to fund the acquisition.

As such, the local players may be placed at a disadvantageous position vis-a-vis foreign ones, said Equity Head of SMC Global Research Jagannadham Thunguntla.

The Bimal Jalan committee on ownership and governance of market infrastructure institutions has recommended that exchanges should not be allowed to list, a ceiling should be put on their profits and dividends, and the role of anchor investors should be limited to only domestic players.

A section of industry has criticised the report as anti-competitive.

When asked whether the government has some concerns on the revised takeover code, Basu said, "At the moment, I have an open mind."

The chief economic advisor said he would shortly decide who should be invited for consultations.

Sebi was to take up the revised takeover code at the last board meeting of previous chairman C B Bhave in February, but the issue was deferred because the finance ministry wants to have detailed discussions on the issue first.

The Bombay Stock Exchange and MCX-SX have repeatedly expressed their displeasure over the Jalan report and said it would promote monopoly and anti-competitive business practices in the market.

They alleged the report would benefit the National Stock Exchange (NSE). NSE, on the other hand, has supported many recommendations of the committee.

The report had opposed listing of stock exchanges on bourses, arguing that any downward movement of their share prices could hit the credibility of the market institutions.

Faced with criticism from various quarters, Jalan also seems to have softened his stance. At an interactive session, he had said the committee was not fundamentally opposed to listing, but in the current situation, bourses should not be allowed to list because the "balance" was not clear.

"We have a completely open mind on listing. There is no fundamental assumption that this should not be listed. There is a good case of listing, but there is this issue.

Until we stabilise markets, we have taken a view on listing saying 'on balance'… You have to take a balanced view that should be subject to discussion, debate and change, if required," Jalan had said.

Jalan, however, denied claims that his report would hamper competition in the market place.

He said stock exchanges are in the service business and they have to safeguard the interest of the public and other stakeholders.


Indivjal Dhasmana, Vrishti Beniwal in New Delhi