The proposed move by the securities regulator to amend the delisting guidelines is intended to ensure a level playing field for participants in the securities market. The alternate pricing mechanism based on a formula of floor price plus a flat premium of 25 per cent may turn out to be arbitrary and not in the interest of shareholders in every case.
The claim by a section of market participants that this process does not aid price determination appears somewhat inappropriate at this point. In the existing guidelines, the power of public shareholders to bid for price discovery was counter-balanced with the freedom given to the promoters to reject the discovered price.
Just as promoters have rejected the high price expectations from investors in such offers as Astra Zeneca Pharma or Blue Dart, others such as eServe International and Flextronics Software have sailed through with good returns to shareholders averaging 30-50 per cent. The proposed amendment, however, lends clarity on the crucial issue of public shareholding required for a voluntary delisting. It states that if the public shareholding goes below 10 per cent (or promoters breach 90 per cent), companies can apply for delisting. This will once and for all settle the niggling doubts of listing norms, which specified public shareholding norms of 25 per cent (going up to 40 per cent in some cases), overriding the provisions of the Takeover Code, which specifies the public shareholding norm of 10 per cent.