Bigger players fare worse at delisting in volatile FY14

Written by Ashley Coutinho | Ashley Coutinho | Mumbai | Updated: Apr 10 2014, 09:50am hrs
Despite the typical problems associated with delisting, 10 firms managed to delist their shares from the bourses in FY14, a year when the equity market stayed volatile.

Most of these companies are small with a market capitalisation of less than R1,000 crore. The firms include the likes of Fairfield Atlas, Jolly Board, Mangalam Ventures, Palani Andavar Mills and Denso India.

Companies with market capitalisation of more than R1,000 crore include Reliance Broadcast Network and Fresenius Kabi Oncology. Delisting offers in FY14 amounted to R1,132 crore, marginally higher than the amount of R1,079 crore in FY13.

The minimum shareholding deadline prompted several companies last year to firm up their delisting plans. Since the market conditions were subdued and liquidity in several of these firms was low, the delisting offer gave a good opportunity for investors to exit these stocks, said Uday Patil, director, investment banking, Keynote Corporate Services.

According to experts, the case for delisting becomes stronger in a weak market environment as a substantial fall in stock prices provides an opportunity for corporates to buy out the remaining stake with the public at lower valuations.

The benchmark BSE Sensex gained more than 19% in FY14, but was characterised by intermittent volatility particularly in the first half of the year.

Interestingly, most bigger MNC players who wanted to delist their shares in 2012 did a volte face and opted for stake sales instead. For instance, firms such as Oracle Financial Services Software, Timken India and Novartis India opted to reduce stakes rather than delist. Delisting attempts by MNCs such as Saint-Gobain Sekurit India and Ricoh India were unsuccessful. Sebi is reportedly working on overhauling the delisting process to eliminate chances of manipulation of prices of stocks slated for delisting. Recently, proxy advisory firm IiAS had came out with a report saying delisting regulations had to be simplified as the process was time consuming, and marred by high cost, limited mode of delisting, and lack of funds.

The advisory firm suggested providing multiple delisting avenues such as issuance of Indian Depository Receipts (IDR) of the parent company to buy out the stake of public shareholders of the listed Indian entity. It also 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. The delisting can be facilitated using the stock exchange mechanism and the involvement of regulatory bodies like Sebi and RoC should be kept to a minimum, said IiAS.

Delisting has become difficult since Sebi tightened the norms in June 2009. The capital market watchdog ruled that a company could be delisted only if the promoters increase their stake to 90% or acquire at least 50% of the non-promoter shares through a share purchase offer, thereby providing shareholders an exit opportunity.