Comments
In what could be a major policy shift, SEBI plans to allow investors to tender their shares through a stock exchange platform in a delisting offer.
These views were spelt out in a discussion paper on ‘Review of Delisting Regulations’ put out for public comments by the capital market regulator on Friday.
Any such move (allowing tender of shares through bourses) may increase investor participation in Reverse Book Building (RBB) and level the playing field between RBB and sale of shares in a stock exchange, say capital market experts. This is because investors can avoid paying higher taxes if they are allowed to tender their shares through an exchange platform in a delisting offer.
“This is a policy shift. The tax issue had led to muted interest in RBB among investors. Now tendering shares in RBB could become popular,” Sai Venkateshwaran, Head-Accounting Advisory Services at KPMG in India, told Business Line .
Making RBB through stock exchange will ensure tax benefits to shareholders encouraging them to tender their shares in delisting, said Lalit Kumar, Partner, J Sagar Associates, a law firm.
This proposal is a welcome step as it will encourage more investor participation in delisting offer, said V Chandrasekhar, Company Secretary in a multinational firm that recently delisted in India.
Tax incidence Investors refrained from tendering shares in RBB as this entailed a higher capital gains tax as compared to selling shares in a stock exchange, which attracted a securities transaction tax and lower capital gains tax.
Tendering of shares in RBB is currently treated as an off market deal and consequently the tendering shareholders do not get the benefit of lower capital gains tax.
The current income tax law provides that only trades put through recognised stock exchanges will be eligible for long-term capital gains tax exemption and lower short-term capital gains tax. Also, generally the retail investors are not aware of the bidding price sensitivities and end up bidding at high premiums, thus, making the price uneconomical for the acquirer.
These factors result in lack of participation in the delisting process.
Acquirers’ concerns From the perspective of acquirers’, some concerns have been expressed that the mechanism of RBB – which is to aid in determination of fair exit value for minority/public shareholders – is not fully achieving the objective.
The mechanism is not necessarily leading to genuine discovery of price, it was argued.
Shareholders holding significant stake exercise disproportionate powers in determining the exit price and thereby, affect the interest of larger set of minority/public shareholders.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.