Devonshire Capital
Saturday, December 2nd 2000

Business Line Financial Daily from THE HINDU group of publications

Devonshire Capital in a Catch-22 situation

Ashok Jainani

MUMBAI, Dec.1

THE recent acquisition of stake by Devonshire Capital Mauritius (DCM) in Times Guaranty (TGL) has caught the former in a regulatory Catch-22 situation. It has to contend with the conflicting requirements of the Securities and Exchange Board of India (SEBI) and the foreign direct investment norms of FIPB.

DCM, a part of the Hongkong-based Devonshire Capital Management group, has acquired 1.34 crore shares, or 74.92 per cent of the equity capital of TGL, at a price of Rs 4 per share aggregating Rs 5.39 crore.

In order to fulfil SEBI's takeover regulations, DCM has to make an open offer to buy 20 per cent equity from the general public. As per the norms, it is making an open offer, expected to open on December 11, to acquire 35.97 lakh shares, or 20 per cent of TGL capital at a price of Rs 7 per share aggregating Rs 2.52 crore.

In the event of successful completion of this open offer, DCM would end up with holding 95 per cent of the TGL's existing equity capital of Rs 17.98 crore. At the same time, and to fulfil the FIPB norms, DCM would have to divest bloc of shares or go for fresh issue of shares to maintain the minimum floating stock in the market.

Going by the FIPB norms, DCM is not allowed to raise its equity stake in TGL, a non-banking financial company, beyond the maximum permissible limit of 74 per cent.

To fulfil the FIPB norms, DCM had given an undertaking to SEBI and FIPB that it would disinvest through an offer-for-sale or by a fresh issue of capital to the public within six months from the date of closure of the offer, such shares to retain the listing status, said Mr Kush Verma, Managing Director, DCM. After the takeover, TGL would go for a change in name to Devonshire Capital India Ltd.

The new management has also decided to restructure the capital by slashing the equity by half to write off accumulated losses of Rs 42.96 crore as of March 2000. The capital would be halved to Rs 8.99 crore from the existing Rs 17.98 crore by cancelling of capital. Similarly, an amount of Rs 33.97 crore would be written off from the share premium account in general reserves.

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