Reforms will improve capital allocation – The Economic Times

Clipped from: https://economictimes.indiatimes.com/opinion/et-editorial/reforms-will-improve-capital-allocation/articleshow/86622108.cmsSynopsis

The extant norms for delisting and takeover require that the acquirer make directionally contradictory share acquisition transactions during mandatory open offer, and then must bring it below 75% stake threshold to attempt delisting, which may necessitate the acquirer to hike equity stake to as much as 90%. The Sebi norm for differential bidding for takeover and delisting is innovative and efficient.

Sebi’s recent clutch of market reforms are in the right direction. Easier delisting and takeover norms would boost merger and acquisition (M&A) activity in India Inc, induce better management performance and improve the market for corporate control here. The delisting reform would be especially beneficial for an acquirer desirous of getting the target company delisted after takeover.

Sebi has also liberalised norms for issue of superior voting rights shares for promoters and founders seeking listing on the main board. There would now be more checks and balances on related-party transactions of listed companies, especially those pertaining to entities related or connected with the promoter group, so as to enhance corporate governance standards. Besides, the norms for portfolio investment services have been relaxed to facilitate co-investment for investors of alternative investment funds (AIFs). Resident Indians can now be constituents of foreign portfolio investors (FPIs) registered as AIFs in International Financial Services Centres (IFSCs). Further, a national Gold Exchange platform is to be operationalised, to shore up liquidity and reduce transaction costs; and a Social Stock Exchange under Sebi oversight is to be set up to raise funds for social enterprises. The steps taken should holistically boost capital market activity.

The extant norms for delisting and takeover require that the acquirer make directionally contradictory share acquisition transactions during mandatory open offer, and then must bring it below 75% stake threshold to attempt delisting, which may necessitate the acquirer to hike equity stake to as much as 90%. The Sebi norm for differential bidding for takeover and delisting is innovative and efficient.

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