Time to take a relook at the delisting process

SEBI has proposed some key changes to the delisting regulations with respect to the process of delisting and the various timelines so that it can be completed in a predictable and time-bound manner.

Nov 25, 2020 07:11 IST India Infoline News Service

Sebi
The delisting announcement and subsequent withdrawal by Vedanta highlighted one thing for sure. It was time for a re-look at the delisting process and the pricing methodology. The delisting guidelines were first formulated in 2003 and modified in 2009. Not much changed in the last 11 years and the Vedanta case provided just the trigger for that.

Now SEBI has proposed some key changes to the delisting regulations with respect to the process of delisting and the various timelines so that it can be completed in a predictable and time-bound manner. The proposals are currently up on the SEBI website for public comments and call for enhanced disclosures by the company proposing to delist so as to give better quality information to investors.

Key takeaways from the proposed changes to delisting regulations

With the broad contours of changes in place and Vedanta providing the perfect backdrop, here are some SEBI has proposed some key changes to the delisting regulations with respect to the process of delisting and the various timelines so that it can be completed in a predictable and time-bound manner, that have been proposed.
  1. Proposal: The first change proposed pertains to the obligation to inform the shareholders about the decision to voluntary delist the company. It is proposed that the promoter / acquirer disclose the intention to delist on the same day to the shareholders as is intimated to the company. The announcement has to be made by the promoters of the company.

    How it will help: This amendment will be useful in two ways. Firstly, it explicitly puts the onus of disclosure on the promoter of the company. This will avoid the confusion between the promoter and the acquirer. Secondly, this will do away with any chances of insider trading or strategic F&O positioning based on information asymmetry.
  2. Proposal: Since there are no timelines for the board to make specific disclosures about delisting, SEBI has sought to make it more conclusive. It is proposed that the board meeting to approve the delisting be convened within 21 days of getting the offer from promoters. In addition it is also proposed that the board share the merchant banker’s report and the audit report with the stock exchange while communicating the decision.

    How it will help: These are important changes proposed to the delisting process. Firstly, the timeline will ensure that there is conclusive move on the proposal and there is no information play that happens. Secondly, the merchant banker report and the audit report will be made public by the stock exchange. This will empower shareholders to take a more informed decision on whether to accept the delisting proposal.
  3. Proposal: The modifications proposed also envisage a large role for the independent directors of the company. It is suggested that the board constitute a committee of independent directors to provide reasoned recommendations on the delisting offer. The voting pattern of the independent directors on the delisting must be made public.

    How it will help: Since independent directors are not affiliated to the promoter group, they can give a more dispassionate view on the delisting proposal for the benefit of shareholders. The voting pattern (even without disclosing names) will tell shareholders if the delisting proposal was accepted unanimously or as a majority vote amidst diverse opinions.
  4. In addition, it has been proposed that promoters / acquirers deposit only 25% of the total consideration to be paid for the delisting into the escrow account as against 100% currently. This will provide relief in the light of the delays in the delisting process.
  5. A major issue in the Vedanta delisting was reporting of unconfirmed bids. SEBI has proposed two changes. The success or otherwise of the reverse book building (RBB) shall be disclosed within 2 hours of the close of tendering. Unconfirmed bids must not be displayed in the stock exchange window.
  6. In an important shift, it is proposed that demat shares be tendered for delisting by way of lien to avoid unnecessary transfers back and forth. In case the 90% threshold is not met, then the lien should be released on the same day.
  7. To simplify the payment mechanism, payout for delisting must be made to shareholders through the secondary market settlement mechanism instead of after 10 days. The company will get 5 working days if the discovered price is above the floor price.
  8. Regarding the remaining shareholders, in the case of 90% shares tendered, SEBI has proposed that the company communicate with the remaining shareholders directly and through newspaper advertisements on a quarterly basis to tender their shares.
  9. Delisting companies have a challenge in meeting the 90% threshold if the shareholders include vanishing companies, struck-off companies etc. In such cases, it is proposed that the 90% be calculated by excluding such shareholders.
  10. Finally, on the subject of book value, there is confusion whether this pertains to standalone book value or consolidated book value. SEBI has proposed that the higher of the two be considered for valuation purposes.
Vedanta has provided the trigger but the good news is that long-needed changes in the delisting process could finally happen!

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