Regulator proposes to ease delisting norms

In a consultation paper floated on Monday, the regulator proposed providing an alternative route to listed firms for reverse book building and has also proposed a tweak counter offer framework.

In a press conference held last month, Sebi chairperson Madhabi Puri Buch said a relook into the delisting rules was necessary since any participant who enters the listed markets should be able to exit it.

In the 20-page consultation paper, Sebi proposed to allow firms to make delisting offers at fixed prices. Through this mechanism, the company can announce a fixed price for delisting, and investors can choose to sell or not sell their shares at the price. If the acquirer’s offer fails to take him to 90% shareholding in the company, the acquirer will be required to wait for six months and then refloat the offer. This proposal significantly eases the process of delisting for listed firms since reverse book building has been a key thorn for delisting in India.

“It was also discussed that the fixed price route will give acquirers and the shareholders certainty with respect to the pricing of the delisting offer. This would help shareholders decide upfront whether to participate in the delisting process or not at the given price,” Sebi said in the discussion paper. “This could also benefit an acquirer in arranging funds for such delisting offers as the price at which the exit offer will be made is known well in advance.”

Current Sebi rules mandate all delisting offers to go through what is called a reverse book-building mechanism. When an acquirer makes a delisting offer, he needs to specify an indicative price at which he wants to buy back the shares. Now investors of the company bid to sell their shares at a price they think is fair. The price at which most of the investors are willing to sell their shares becomes the floor price. This whole mechanism is called reverse book building.

Some traders in the market have been exploiting this rule by pocketing a large number of shares of a company proposing to delist. And then, they jack up the floor price by bidding at exorbitant prices while tendering shares for delisting. Effectively, a bunch of traders were able to hold the whole delisting offer hostage.

Sebi has also proposed to lower the threshold for acquirers making counter offers. If the price discovered through reverse book building is not acceptable to the acquirer, then the acquirer can make a counter-offer, essentially suggesting how much he is willing to pay for the shares. If the counter-offer fails, the delisting fails. Now Sebi has proposed to provide an indicative price for counter offers depending on what proportion of shareholders have already tendered their shares.

“The sub-group proposed to lower the threshold required to make a counter-offer. A lower counter-offer threshold would give an acquirer the opportunity to make a counter-offer that could potentially be accepted based on bids received by public shareholders. This could help ensure successful delisting offers where the majority of the public shareholders are in favour of a delisting offer,” Sebi said in the paper.

Sebi has also proposed to tweak the delisting norms for investment holding companies. The investment holding companies often trade at lower valuations than the subsidiary company, which is the business-carrying entity. Hence, Sebi felt the offer price for delisting in this company by normal route would not completely reflect the intrinsic business value of the holding company. Hence suggested separate norms for such companies.

Updated: 15 Aug 2023, 12:17 AM IST