The Hindu Business Line : NIF seeks provision to buy out promoters

NATIONAL Investors Foundation (NIF) has urged the Securities and Exchange Board of India (SEBI) to make provision for buying out promoters, in case the company in question opts for delisting.

In a formal presentation to the market regulator, the investor interest group has also proposed an exit value for promoters, similar to the benchmark that prevails in case of keeping control over the company.

NIF said that the promoters holding should command a 25 per cent premium, known as control premium, over the normal exit value.

"While fixing the exit value (for non-promoter shareholders in case of delisting), the promoters should be willing to sell out his stake, should any proposal to buy out his stake at 25 per premium over an exit price is offered," NIF has suggested.

It felt that the onus of determining the true value of the business should be on the promoters since "most of the valuation methods prevalent now are rather theoretical, in nature, and do not reflect the inside information, which only the promoter is privy to."

Knowledge of the exact intrinsic value of the company falls exclusively in the domain of the promoter as insiders, it argued.

It further suggested that the buy-out provision act as a deterrent for the promoters against quoting unreasonable exit price for the non-promoter shareholders in case of delisting.

On the other hand, if there is no proposal by any investor to buy out existing promoters offering control premium over the exit price, the exit price should be made binding on all the non-promoter stakeholders.

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