Securities and Exchange Board of India (Sebi) chairperson Madhabi Puri Buch’s strong pitch for changing delisting norms is the second such attempt by the market regulator in the last couple of years. The last consultation paper in July 2021 faced resistance from many quarters. At that time, the proposals included allowing the acquirer to launch open offers and delisting offers simultaneously at different prices; a requirement of only 51% of minority shareholders’ nod for special delisting resolution instead of 66%; and a fixed higher price concept to be paid by the acquirer. Investors argued against these proposals, saying the reverse book building (RBB) process that allows discovery of price should not be abandoned, and delisting and open offers should be kept separate.
While Sebi has proposed to come out with another paper in December, the regulator has hinted at giving two or three options to companies to delist. The company can offer delisting at a fixed price and explore RBB. If even RBB doesn’t work, the company may be given additional time to come up with a solution. Prima facie, the argument that promoters should be able to delist without feeling like ‘Abhimanyu’ is strong. At the same time, minority shareholders seeking a fair price for their holdings cannot be dismissed as ‘mischief’ or ‘shareholder activism’. The challenge is to balance the two.
In that context, the current guidelines do seem stringent. For one, companies have to get a nod from 66% shareholders to pass the special delisting resolution, which is stiff. But the real dealbreaker is the mandate that any delisting can succeed only if it manages to acquire 90% of the shares in the company. No wonder there are accusations from promoters that savvy market traders team up and collectively buy more than 10% stake in the company and then demand a higher offer price from the company. And sometimes, the demand can be ridiculous. For example, Universal Photo Imagings offered a floor price of `568 per share. However, the price discovered through the RBB route was Rs 1,500, forcing the acquirer to withdraw. There is also an argument that because of the 90% limit, if the 10% shareholders demand a very high price, forcing the acquirer to withdraw. The larger public shareholder base, who had tendered their shares at a reasonable price and sought a possible exit from the company, suffer.
Many promoters face the ignominy of not being able to even cross the special delisting resolution stage as the majority of minority shareholders vote against it despite having more than 70% stake. So, the argument that if one has the freedom to list a company, freedom to delist should also exist, holds water. Proponents of this theory believe that RBB is the biggest impediment to this freedom. At the same time, Sebi has to protect the retail investor’s interests too. There have been cases where the promoters have offered a very low price and thankfully weren’t able to complete the delisting because investors did not tender the shares. So, opponents say that RBB is a safety net for retail investors. For the market regulator, it will be a tough test. Keeping promoters and investors happy at the same time will be hard. But reducing the 90% limit to say, 75%, or reducing the percentage requirement for special delisting resolution to pass might be a good solution.
