SEBI paper suggests alternative mechanism to delist shares

SEBI paper suggests alternative mechanism to delist shares

Subject : Economy

Section: Capital market

In News: SEBI paper moots a fixed pricing concept for delisting of shares, in addition to changes to reverse building process and provision of counter-offer mechanism.

Key Points:

• A SEBI sub-group, headed by Kiki Mistry, came out with a consultation paper recommending changes to delisting norms.
• The term “delisting” of securities means permanent removal of securities of a listed company from a stock exchange. As a consequence of delisting, the securities of that company would no longer be traded at that stock exchange.
• 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.
• The main recommendations are as follows:
  •  An acquirer of a company will have the option of providing an exit opportunity to all public shareholders at a fixed price under certain scenarios. The present approach only offers delisting through reverse book building process.
  • At present a minimum of 90 percent share holding post acquisition is necessary for delisting and there is no provision of counter offer. It is proposed that an acquirer can make a counter-offer in case the 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 threshold criteria is also relaxed for counter offer.
  • 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), an alternate delisting framework has been proposed, 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.