Discussion Paper on 'Review of Delisting Regulations'
Background:
1. SEBI vide notification dated June 10, 2009 notified the SEBI (Delisting
of Equity Shares) Regulations, 2009 ("Delisting Regulations"),
thereby superseding the earlier SEBI (Delisting of Securities) Guidelines,
2003. Delisting Regulations were framed after extensive consultations with
various market participants and investor associations in order to safeguard the
interest of investors.
2. Subsequently, SEBI received several representations from market
participants including stock exchanges, industry representatives and investor
associations, highlighting the challenges faced in delisting process and
suggestions to address the concerns.
3. Market participants have pointed out issues in the delisting process
both in the cases where the delisting offer has succeeded or failed. In case of
successful delisting offers, a few market participants have apprehended that
the success of the offer was due to tacit understanding between promoter(s) and
a set of investors. Similarly, when the delisting offer fails, a few market
participants have raised concerns that the discovered price through reverse
book building process has been unduly influenced by a set of investors who are
mainly speculators.
4. From the perspective of acquirers, the issues highlighted are summarised
as under:
4.1.
Reverse Book
Building (RBB) Process: It has been
argued that the RBB process, which is supposed to engender an investor
friendly mechanism for price discovery and to aid in determination of a fair
exit value for minority / public shareholders, is not fully achieving the
objective. The mechanism is not ecessarily leading to genuine
discovery of price. A few concerns raised in relation to the RBB process as
pointed out the by market participants are as under:
i.
The minority /
public shareholders holding significant stake exercise disproportionate powers
in determining the exit price and thereby, affect the interest of the larger
set of minority / public shareholders.
ii.
Some of the bids
are placed at a price which is much higher than the floor price determined as
per the said Regulations. These bids are generally placed by some investors who
have invested in the company close to the delisting process with a view to make
unreasonably large gains in the process. Such bids destabilize the delisting
process and adversely affect the interest of other minority / public
shareholders who have undertaken the risk of investing with a longer time
horizon and are denied a fair exit.
iii.
A tacit understanding
between a few market participants in the price discovery process may work
against the interest of other minority / interest shareholders intending to
participate in delisting process.
4.2.
Lack of sufficient
demand: Retail investors find it difficult to
comprehend the RBB process resulting in lack of participation by the
retail investors. They are generally not aware of the bidding price
sensitivities and end up bidding at high premiums, thus, making the price
uneconomical for the acquirer. Further, tendering of shares in the delisting
process is treated akin to off-market transactions and consequently, the
tendering shareholders do not get the benefit of lower capital gains tax. These
factors result in lack of participation in the delisting process.
4.3.
Time consuming
process: The sequential process including the
requirement for obtaining shareholders' approval increases the timeline
of the delisting process. This enables some investors to build
significant positions in the company’s stock and influence the delisting
process.
5. Certain concerns relating to the delisting process have also been raised
from the perspective of investors. Market participants have raised the concern
that the acquirers are finding ways to side-step the said Regulations. There
are apprehensions that either through parking their own shares by way of offer
for sale (OFS) / Institutional Placement Programme (IPP) or through informal
arrangements with a set of investors, they acquire such shares at a
predetermined price and successfully delist the company at a price favorable to
them. This adversely impacts true price discovery.
Need for review:
6. Taking note of the above issues and concerns which underpin the need to
revisit the present delisting process, SEBI decided to examine and review the
present conditions for the delisting of securities of companies.
7. Accordingly, suggestions / comments were examined and placed before the
Primary Market Advisory Committee (PMAC). Subsequently, a discussion paper has
been prepared incorporating the various concerns raised and suggestions to
address the same and is Annexed herewith.
Public comments:
8. Considering the importance of delisting of companies, public comments on
the discussion paper are solicited. Specific comments/suggestions as per the
format given below would be highly appreciated.
Name of entity /
person / intermediary:
Name of organization
(if applicable) / investor:
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Sr.No.
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Pertains to serial
number
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Proposed /
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Rationale
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-- of discussion paper
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suggested changes
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9.
Such comments may
please be e-mailed on or before May 30, 2014, to delisting@sebi.gov.in or sent, by post, to:-
Amit
Tandon
Deputy
General Manager
Corporation
Finance Department
Securities
and Exchange Board of India
SEBI
Bhavan
Plot
No. C4-A, "G" Block
Bandra
Kurla Complex
Bandra
(East), Mumbai - 400 051
Ph:
+912226449373/ +912226449334
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