Rising equity markets may not encourage many companies to opt for delisting given high valuations, even as the Securities and Exchange Board of India (Sebi) has reduced the time taken for delisting and also eased a clause pertaining to shareholders’ participation.
“The share prices are trading at expensive valuations. Companies would want to wait for the right pricing. Delisting is a bear-market product,” said an investment banker, on conditions of anonymity.
Shares of certain MNCs which have tried to delist in the past have seen their share prices rally 34-214% in 2014. If Linde India attempts to delist again, at current market prices the promoters will have to shell out R564 crore to meet the 90% threshold limit. Promoters of Elantas Beck India, Goodyear India and Ricoh India would have to shell out R138 crore, R226 crore and R195 crore, respectively.
The market regulator last month eased delisting framework further by diluting the mandatory 25% minimum public shareholding norm. “…if the acquirer and the merchant banker are able to demonstrate that they have contacted all public shareholders about the offer in the manner prescribed, then the condition of mandatory participation of 25% of the public shareholders holding shares in demat mode would not be applicable,” said Sebi.
Experts feel there may be some extra-costs involved in reaching out to all the public shareholders, but it would be only clear once we know what Sebi means by “manner prescribed”.
“Most of the changes are procedural and clarificatory in nature, and in the right direction. The new norms allow delisting through the stock exchange mechanism, so that the transactions attract securities transaction tax and a lower capital gains tax. The norms provide a clear framework and removes tax arbitrage between delisting and market transaction,” said Sourav Mallik, senior head of M&A at Kotak Investment Banking.
In its November board meet last year, Sebi made changes to the regulations and reduced the delisting timeline from 117 working days to 76 working days. The market regulator scrapped the condition that 50% of shares held by public shareholder needed to be tendered while delisting.