https://www.financialexpress.com/opinion/delisting-made-easier/3539800/
Clipped from: https://www.financialexpress.com/opinion/delisting-made-easier/3539800/
So far, the only mode available was the two decades-long reverse book building (RBB) (Photo: Canva/Representative Image)
Delisting in India has always been an arduous task for companies. At the same time, minority shareholders seeking a fair price cannot be dismissed as “mischievous” or “shareholder” activism. In that context, the Securities and Exchange Board of India’s (Sebi) latest guidelines are aimed at striking a fine balance between the two. Companies will be relieved that the fixed price method gives them one more option to delist. So far, the only mode available was the two decades-long reverse book building (RBB). Some will, of course, quibble with the premium of 15% to the floor price. But Sebi chairperson Madhabi Puri Buch said rather sternly in the post-meeting press conference, “If you think the floor price (of 15%) is not fair, then don’t delist.” That’s a big tick in favour of investor protection.
There is now a stronger counter-offer mechanism as well. The market regulator has allowed acquirers to make counter offers on achieving 75% shareholding, provided that 50% of public shareholders have tendered their shares during RBB. It is a positive development as acquirers who are unable to achieve 90% during RBB will now be eligible to make counter offers. Shareholders’ interest is also protected by ensuring that 50% of public shareholding has participated in the tendering process. The move to change the reference date for floor price has been changed to the date of public announcement against the current date of board meeting. This will ensure that speculators trying to push the share price up/down after the board meeting won’t have a significant role to play. Consequently, the final floor price will be largely unaffected.
Of course, companies may feel a little shortchanged because the counter offer will have to be higher than the volume-weighted average price of shared offered under the RBB process or indicative price, if any. This would give speculators an opportunity to bid at a higher price. The requirement of post-offer aggregate shareholding to delist remains at 90% for the acquirer — a sore point for companies in the past as many promoters having more than 70% stake could not even cross the special delisting resolution stage as the majority of minority shareholders voted against it. Also, the introduction of an adjusted book value as an additional parameter determined by an independent registered valuer for traded stocks may not sit well with many as they think the market price serves as the ideal gauge for assessing the fair value.
For the last couple of years, the market regulator has been trying to usher in new guidelines for delisting. It floated two consultation papers in July 2022 and August 2023. The first proposal ran into trouble with investor bodies speaking against abandoning the RBB process which allows discovery of price. It was also argued that delisting and open offers should be kept separate as against the proposal to do them simultaneously. The last one under former HDFC vice-chairman Keki Mistry broadly covered the parameters on which the current guidelines have been formed. Like Buch said, “Why should we say that once you are listed you can never leave… this isn’t Hotel California. This is a rich, vibrant market, we welcome people… but if for some reason they need to exit, they must be able to.” However, Sebi guidelines make it clear that if a company seeks better valuations by listing, it needs to pay a premium while exiting too.
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