Open Offer Escrow Account: SAST Regulation 17

An open offer escrow account is the money an acquirer must set aside before it publicly details a takeover offer, held as security for performing its obligations under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. Regulation 17 sets the deadline, the amount and the permitted forms. It is the mechanism that makes an open offer more than a press release.

When does the escrow have to be funded?

Regulation 17(1) is precise: not later than two working days prior to the date of the detailed public statement of the open offer for acquiring shares. The detailed public statement is the document that follows the initial public announcement and sets out the offer in full, so the sequencing puts the money in place before the market gets the details.

That ordering is the point. An acquirer cannot make a detailed offer to public shareholders and arrange funding afterwards.

How much goes into the escrow account?

The scale is a two-slab structure on the consideration payable under the open offer.

Two provisos raise it in specific cases:

• Conditional offers. Where an open offer is made conditional upon a minimum level of acceptance, the acquirer must deposit in cash the higher of hundred per cent of the consideration payable for that minimum level of acceptance, or fifty per cent of the consideration payable under the open offer.
• Certain indirect acquisitions. Where the public announcement was made under Regulation 13(2)(e), an amount equivalent to hundred per cent of the consideration payable in the open offer must be deposited.

Regulation 17(2) handles revisions. Consideration is computed as provided in Regulation 16(2), and on an upward revision of either the offer price or the offer size, the escrow is recomputed on the revised consideration and the additional amount must be brought in before the revision takes effect.

What can the escrow be held in?

Regulation 17(3) permits three forms:

1. Cash deposited with any scheduled commercial bank.
2. A bank guarantee issued in favour of the manager to the open offer by any scheduled commercial bank.
3. A deposit of frequently traded and freely transferable equity shares or other freely transferable securities, with appropriate margin, conforming to the requirements in Regulation 9(2).

A proviso inserted in 2020 blocks the third route for indirect acquisitions where the public announcement was made under Regulation 13(2)(e). An explanation permits the cash component to sit in an interest bearing account.

Whichever form is chosen, some cash is unavoidable. Regulation 17(4) requires that where the escrow account is created by way of a bank guarantee or by deposit of securities, the acquirer shall also ensure that at least one per cent of the total consideration payable is deposited in cash with a scheduled commercial bank as part of the escrow account.

Why the escrow tells you something about the offer

For anyone reading a takeover as it unfolds, the escrow is one of the few hard commitments visible early:

• The escrow is dated before the detailed public statement. If you are reading the DPS, the money was already in place two working days earlier.
• The form matters. Cash, a bank guarantee and a securities deposit are not equivalent commitments, and the letter of offer states which was used. Regulation 17(4) is what makes the difference concrete: where the escrow is created by bank guarantee or by deposit of securities, the acquirer must still deposit at least one per cent of the total consideration payable in cash with a scheduled commercial bank as part of the escrow account.
• Conditional offers are funded differently. The cash requirement on a minimum-acceptance offer is materially heavier than the base slab.
• Upward revisions are pre-funded. An increase in the offer price cannot precede the top-up.

How to read the escrow alongside the rest of the takeover record

The escrow is one document in a sequence that starts well before it. The trigger sits in Regulations 3 and 4, the exemptions in Regulation 10, and the disclosures in Chapter V, which is what produces the filings covered in how to read a SAST disclosure. SEBI's comments on the draft letter of offer come not later than fifteen working days from receipt, which is the other clock worth tracking during a live offer.

An open offer is also not the only route to an exit for public shareholders. See tender offer vs open offer and what is a delisting offer for the adjacent mechanisms.

Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.