As per Sebi guidelines brought out in June 2009, promoter holding in a company has to cross 90% or promoters have to buy out more than 50% of the balance public shareholding in the company through the reverse book-building route. The promoter shareholding has to reach the higher of these two requirements if a company is to delist.
The regulator is considering doing away with the second requirement to simplify the delisting process. As per current norms, a company with promoter holding of 89% has to raise its shareholding by 5.5% to 94.5% to fulfil both criteria. If the second criteria is done away with, the company will have to raise promoter holding by just about 1%.
Fulfilling both the conditions is a major impediment in the delisting process and promoters sometimes have to pay through their nose to get the required number of shares, said a merchant banker, on condition of anonymity.
While several small firms have managed to delist from the bourses in the last two years, the bigger firms have been struggling. Most of the bigger MNC players who wanted to delist their shares in 2012, for instance, did a volte face and opted for stake sales instead.
This included firms such as Oracle Financial Services Software, Timken India and Novartis India. Delisting attempts by MNCs such as Saint-Gobain Sekurit India and Ricoh India were unsuccessful.
Delisting is not an easy process as the company must get approval of 2/3rd of the shareholders through a postal ballet, establish an acceptable price through reverse book-building and increase the holding to the required threshold. Given the uncertainty involved in the delisting process, public shareholders typically expect a steep exit price from the company.
Experts said a delisting process becomes even more difficult in the event of concentrated shareholding or if a large number of shareholders holding few shares each are uninterested in selling them to the company.
In a recent research report, proxy advisory firm IiAS had said that the delisting process had to be revisited as it was time consuming and marred by high cost and lack of funds. The firm had suggested providing multiple delisting avenues, wherein MNCs could issue Indian Depository Receipts of the parent company to buy out the stake of public shareholders of the listed Indian entity instead of using cash.
IiAS also recommended that Sebi may consider permitting promoters to use the companys funds and buy back the stake of the minority shareholders to delist instead of mandating promoters to pool in their own funds. The advisory firm advocated a one-track approval from shareholders where the price being offered was clearly stated and shareholders vote on both the price and the offer at the same meeting.