The Hindu Business Line : Delisting cos must pay fair exit value: SEBI

New options
Offer price to be more than fixed price plus premium of 25%
Offer price will be over fair price determined by rating agency plus premium of 25%

Mumbai , Nov. 23

The book building process for de-listing of shares from the stock exchanges is proposed to be scrapped by the capital market regulator, SEBI, which has put in place an alternative pricing mechanism.

Under this, the offer price shall be higher than the fixed price, which would be the floor price plus a premium of 25 per cent. The floor price would be determined by Regulation 20 of SEBI (Substantial Acquisition of Shares and Takeover). Regulation 20 sets down the norms for the determination of the minimum offer price (in this case floor price). Under the second option, the offer price will have to be over the fair value determined by an accredited rating agency plus a premium of 25 per cent. The reference date for calculating the floor prices would be the date on which the stock exchanges are notified of the Board meeting in which the de-listing proposal was considered.

At present, the reference date is the date of the public announcement.

In line with international practices, the concept of minimum subscription has been brought in. The Concept Paper on the proposed SEBI (De-listing of Securities) Regulations, 2006, says, that "world over, in matters of de-listing, it is a known fact that a 10 per cent level of public shareholding was considered as a prudent level for squeeze out option to the promoters whenever companies wanted to delist."

Under the new dispensation, the success of the offer will depend on a minimum subscription pushing down public shareholding below 10 per cent or four per cent. "Thus the promoter holding should breach the 90 per cent or 96 per cent mark depending on the categorisation of the company under Clause 40A," says the Concept Paper.

Shareholders holding shares in physical and demat mode can participate in the offer. Till now the facility was for demat shares only.

SEBI has called for public comment on the revised de-listing plan by December 14.

The capital markets regulator said that the need for a makeover in de-listing norms follows a few anomalies spotted in a scrutiny of price discovery through book building. Some of them are: being disproportionate powers with public shareholders holding major chunk; possibility of frivolous bids to destabilise the de-listing offer;freedom to promoters to reject the price discovered; and revision of bids leading to cartelisation in price discovery.

The Concept Paper adds: "It was increasingly felt that the book building process, which was to aid in the determination of a fair exit value for the shareholders, was not fully achieving the said objective and the perceived investor friendliness of the price discovery mechanism was not necessarily translating into genuine discovery of prices."

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Delisting cos must pay fair exit value: SEBI