NEW DELHI|MUMBAI: The Securities and Exchange Board of India (Sebi) has urged the Supreme Court to allow Malaysian healthcare provider IHH Healthcare to proceed with an open offer for Fortis Healthcare Ltd (FHL). The regulator said in its special leave petition (SLP) that this is mandatory under India’s takeover code as the investor holds a 31.17% stake after having subscribed to a preferential allotment of shares in November 2018. ET has seen a copy of the SLP.
The regulator said IHH Healthcare had completed the transaction before a Supreme Court decision freezing the Fortis-IHH deal in December 2018. The open offer threshold is 25%.
“Stay in the open offer is not in the interests of public shareholders,” Sebi said in the SLP filed on January 22. “The open offer ought to be proceeded with, in the interests of the shareholders of Fortis Healthcare Ltd, who are entitled to, if they so desire, exit the company by accepting the offer, in accordance with the relevant provisions of the Takeover Code, 2011.”
The court’s December 2018 decision came after Japanese drugmaker Daiichi Sankyo said the change in control of the hospital chain had been orchestrated by brothers Malvinder and Shivinder Singh, the former promoters.
Fortis Healthcare Welcomes Sebi’s Move
Daiichi said this was to “defeat” its attempts to get ?3,500 crore the Singhs had been ordered to pay the Japanese company by an arbitration panel over the sale of Ranbaxy. The Singhs had been accused of concealing information from the acquirer when they sold the company in 2008.
Fortis welcomed the Sebi petition.
“We are aware that Sebi has filed such an application,” the company said in an emailed response. “While the matter is currently sub judice, Sebi’s stance is consistent with FHL’s application seeking modification of the Hon’ble Supreme Court’s order dated December 14, 2018. We welcome Sebi’s intervention and submissions that the open offer from IHH is as per Sebi’s regulations, and should be allowed to be proceeded with, in the interest of all public shareholders of FHL.”
The regulator didn’t respond to queries.
“Sebi’s role in the matter is limited to the open offer,” said a person close to the development. “We have filed an application before the Supreme Court saying that the acquirer be allowed to proceed with the open offer as they have already put in the money.”
IHH’s open offer was to be held between December 18, 2018, and January 1, 2019. Minority shareholders of Fortis would have had the right to tender their shares at a fixed price during this period.
The regulator has asked the court to pass “appropriate orders” permitting the acquirer and persons acting in concert to proceed with the open offer to acquire up to 197 million shares of Fortis Healthcare, representing 26% of the expanded voting share capital of the company. It would be in the interests of justice to allow IHH and its subsidiaries Northern TK Venture and Parkway Pantai “to proceed with the open offer to acquire up to 19,70,25,660 shares of Fortis Healthcare Ltd and pass such order,” Sebi’s petition said.
IHH Healthcare won a bid in July 2018 to acquire Fortis, completing the deal in November by buying the 31.1% stake through the preferential allotment of shares. To stabilise the business, IHH infused ?4,000 crore in Fortis. An additional ?3,400 crore that was deposited in an escrow account for the open offer is currently stuck.
At its last hearing in November 2019, the Supreme Court ordered the registration of a suo moto contempt petition against Fortis and sought an inquiry into its purchase of healthcare assets from a Singapore-based trust with proceeds from IHH’s investment. The court observed that the purchase appeared to be a violation of its status quo order. The trust was floated by Fortis when the company was controlled by the Singhs.
The next hearing into the matter has been scheduled for February 3. The Fortis management and the board that ran or supervised operations between January 2018 and January 2019 have also come under Supreme Court scrutiny. They included representatives of the Singh brothers. However, the board did not have any representatives of the Singhs at the time IHH was selected as the highest bidder for Fortis. IHH has maintained that at no time did it collude with the erstwhile promoters or any entities related or controlled by them in relation to the share purchase.
Source- Economic Times.