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Sebi planning measures to ease delisting process for firms


Mumbai: Companies with delisting plans that have been stalled by minority shareholders seeking a vastly higher buyback price may soon get a respite. The Securities and Exchange Board of India (Sebi) is planning to introduce price bands in the delisting process that will mean investors having to tender shares within that range, said two people familiar with the proposals.

The move is aimed at preventing investors from cornering shares and driving them up, well above the floor price, before they tender their shares, a move that has resulted in several delisting efforts being scuttled.

“The price band will help streamline the delisting process and put an end to the cartelisation of a certain section of investors who demand hefty premiums during the reverse book-building process,” said a person aware of the plan. Others said such a move may unduly favour promoters.

This proposal was discussed by the Sebi-appointed Primary Market Advisory Committee (PMAC) last week, said the people cited above. Sebi didnt respond to queries.

Currently, investors can demand anything above the floor price during reverse book building, which decides the price companies need to pay public shareholders to buy back shares to delist. The delisting price is the average of that sought by the majority of public shareholders. Companies and investment bankers allege that groups of investors corner shares and seek abnormally high prices to tender their shares.

Several multinational companies that had planned to delist their Indian arms were forced to abandon the process because of this, experts said.

“For promoting ease of doing business, it should be easier for opening and closing business, but with the current regulations and hefty premium demand from minority shareholders, its practically impossible for delisting any company,” said Dharmesh Mehta, managing director and CEO, Axis Capital. “With a cap on discovery price, both investors and promoters will benefit as the delisting process would be smoothened.”

Companies such as Indo Tech Transformers, DIC India and Ricoh India among others have failed to delist in the recent past due to a rally in stock prices after making delisting announcements.

US-based CSC globally acquired London-based Xchanging in 2016 and made an open offer for Xchanging Solutions, the Indian arm. After the company announced delisting plans, Xchanging Solutions more than doubled from Rs 50 in early May 2016 to a high of Rs 106.65 on August 31, against the offer price of Rs 40.51. The discovered price was Rs 109, which was not acceptable to the company, forcing it to scrap delisting plans and announce a fresh open-offer schedule.

Valuation expectations start building even before the delisting process begins, according to bankers. A company in India can be delisted if an offer results in the promoter holding exceeding 90%, or the promoter acquiring at least 50% of the public holding, whichever is more.

Minority shareholders have been expecting high valuations because of the delisting of a few multinationals at an attractive premium in the recent past.

Earlier this year, US-based Virtusa Consulting Services, which had acquired Polaris Consulting & Services, announced a delisting offer at a floor price of Rs 232 and later gave an indicative price of Rs 370 per share. The stock price more than doubled after the announcement in mid-October 2017 until the last day of the offer on February 5, 2018. The company eventually accepted the discovered price of Rs 480 as the exit price.

Some said the move would benefit promoters.

“Any price restriction on the discovery price is not in the interest of minority shareholders and Sebi as a market regulator should not favour only promoters,” said Ashok Bakliwal, former president, Bombay Shareholders Association and erstwhile member of several Sebi committees.

The regulator will have to strike a balance between two competing interests — that of promoters looking to delist and minority investors seeking to exit at a better price, said a securities lawyer.

“Sebi has to do the balancing act of ensuring that the same does not in any manner compromise the interests of the minority investors in terms of receiving a better final price,” said Vinay Chauhan, partner, Corporate Law Chambers India. “Clearly, fixation of price band is a subjective exercise and proper parameters will have to be laid down for the same, in order to avoid any unfairness or arbitrariness.”

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