SEBI paper suggests alternative mechanism to delist shares

The Securities and Exchange Board of India has mooted a fixed pricing concept for delisting of shares. In a consultation paper, SEBI also tweaked norms for the reverse building process and counter-offer mechanism,

A SEBI sub-group, headed by Kiki Mistry, came out with a consultation paper that suggested providing an acquirer with the option of providing an exit opportunity to all public shareholders at a fixed price under certain scenarios.

The major reason behind such a move, according to the sub-group, was the announcement for delisting usually results in increased volatility and speculative activities in the scrip of such a company.

New criteria

According to the proposal, the fixed price offered by the acquirer should not be lower than the floor price as determined under the delisting regulations; and the delisting offer should be successful if the post-offer shareholding of the acquirer along with the shares tendered by the public shareholders, at the price offered by the acquirer, reaches 90 per cent of the total equity capital of the company.

After the six-month cooling-off period as presently provided under the Delisting Regulations, any subsequent delisting attempt can be made either through the fixed-price route or pursuant to the reverse book-building process, it further clarified.

The group also tweaked the Reverse Book Building Process and Counter-Offer Mechanism to make delisting offer successful.

Lowers threshold

Currently, if post-offer shareholding of the acquirer does not reach 90 per cent of the share capital of the targeted company, the delisting offer is considered to have failed.

The current provisions do not permit the acquirer to make a counter-offer in that case. This may lead to a scenario where majority of the public shareholders have tendered their shares and are in favour of delisting, but the delisting offer fails since the required thresholds are not met.

The sub-group now proposed to lower the threshold required to make a counter-offer. Accordingly, an acquirer can make a counter-offer if the bids received are higher than: difference between the acquirer’s shareholding and 75 per cent of the total issued shares of the company; and 50 per cent of the public shareholding.

If the acquirer chooses to make a counter-offer, the price should be higher than: volume weighted average price of the shares tendered/offered in the reverse book building process; and the initial floor price disclosed and calculated for the reverse book-building process.

Floor price norms

Besides current regulations, it also proposed to include adjusted book value (considering consolidated financials) as determined by an independent registered value to arrive at a fair price to fix floor price.

In case of delisting of investment holding company (IHC), the sub-group has proposed an alternate delisting framework, whereby the shares of the underlying listed companies held by the IHC are transferred to its public shareholders and the holding of the public shareholders in the IHC is extinguished pursuant to a court approved scheme of arrangement.

SEBI has sought feedback by September 4 to these proposals.