Calcutta, Nov. 7: The Securities and Exchange Board of India (Sebi) has asked the Ruia Group to make an open offer for Dunlop and Falcon Tyres.

It has also directed the new promoter to pay an interest of 10 per cent to shareholders for the delay in making the offer.

On November 1, T.C. Nair, whole-time member of Sebi, passed an order saying a public announcement regarding the offer would have to be made within 45 days.

An open offer gives shareholders of an acquired company the option to exit if they do not want to remain invested with the new promoter.

When contacted, Dunlop and Falcon chairman Pawan K. Ruia said he still believed an open offer was not required.

However, legal officers were studying the order and a decision would be taken within the next 2-3 days, he added.

The Ruia Group has the option of challenging the Sebi order in the Securities Appellate Tribunal (SAT).

However, sources close to the group pointed out that it might accept Sebi’s ruling and make the offer since prices were low. Dunlop shares were last traded in April 2002 at Rs 6.6. Trading was suspended in February 2003.

Falcon shares are now trading at Rs 108. However, Sebi said the offer price should be Rs 148 a share, the closing price on November 28, 2005 when the transaction took place. In the case of Dunlop, the offer is to be made at Rs 10 a share.

A back-of-the-envelope calculation shows that Ruia has to stump up close to Rs 26 crore for the twin open offers, apart from shelling out interest at 10 per cent from June 2, 2006, which Sebi takes as the date when the offer should have been concluded.

The Ruia Group had argued that a mandatory open offer for 20 per cent additional share was not required since it did not acquire the shares of Dunlop and Falcon directly and the deal was an overseas one.

Wealth Sea Pte, a Ruia Group company incorporated in Singapore, took over DIL RIM and Wheels Corporation Ltd of Mauritius, the holding company of Dunlop and Falcon Tyres, for Rs 200 crore.

Moreover, Wealth Sea took shareholders’ approval at an extraordinary general meeting (EGM). Wealth Sea had bought 74.5 per cent of Dunlop and 68.98 per cent of Falcon.

Sebi did not buy the argument and said shareholders were deprived of their right to exit the company.

If Ruia makes an open offer and it meets with even limited success, promoters’ holding will cross 75 per cent in each case and subsequently shares would have to be diluted to keep both companies listed.