The Securities and Exchange Board of India (Sebi) is likely to remove a clause requiring acquisition of a minimum 50% shares by a promoter to delist a company from the stock exchanges. This, and a host of other changes seeking to simplify the framework for share delisting and reduce the time involved in the process, will likely be announced at the Sebi board meeting on November 19, sources told FE on conditions of anonymity, as they were part of the committee that gave feedback to Sebi on its consultation paper.
Sebi will also announce an improved framework on prevention of insider trading after the board meeting in Mumbai.
The new norms will enable Indian stock corporations to delist shares in about 60-70 days by cutting the time required for various approvals as against the current norms that spans the process across 140-150 days and, sometimes, even more than a year. The move will help companies save cost and time with a faster process and also check any manipulation in the share price associated with a longer time-frame.
The framework will cut the time required for various approvals – board, shareholding, stock exchanges and regulatory — to about 30 days, and help the companies conclude the offer and finish delisting formalities in another 30-40 days.
In addition to the reduced time-frame, Sebi will likely remove the clause that requires promoters to acquire 50% of the balance shareholding after the company achieves 90%, which will enable the company to raise promoter holding by just 1%. 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.
Corporate law and investment bankers also recommended aligning minimum public shareholding (MPS) norms, the takeover regulations and delisting, wherein the company has to notify its intent to delist the company. Experts said Sebi will also clarify and disallow the merger of unlisted companies with a listed entity for delisting. The new Companies Act allows such delisting.
“There is a lot being discussed and Sebi has finalised a few things. One thing is for sure: Reverse book building is here to stay with certain tweaks in the process,” said a senior official of a leading corporate law firm, requesting not to be identified.
In May this year, Sebi had floated a discussion paper on proposed new delisting norms, including a reduced time-frame and a broader price discovery mechanism.
Many large firms have struggled to delist, owing to their failure to acquire a minimum 50% shares from public shareholders. Companies were forced to pay a huge sum as the exit price, or reduce the promoter holding to 75% as prescribed under the MPS.
Firms that were unsuccessful in delisting their shares include AstraZeneca Pharma, Oracle Financial Services Software, Timken India, Novartis India, Thomas Cook, Saint-Gobain Sekurit India and Ricoh India, among others.
Experts said delisting is a complicated process that requires the company to 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.