Delisting mechanism: SEBI’s approach is holistic

SEBI recently came out with a consultation paper on the delisting mechanism. The move is aimed at making the process robust, efficient, transparent and investor friendly, the Securities and Exchange Board of India said in the paper.

The 24-page paper covers almost all the issues with respect to delisting, and the proposals appeared to have been analysed threadbare.

Among the proposals, the one on pricing and the other on timelines on disclosure, a contentious issue, are praiseworthy.

Book value

The SEBI paper has proposed that in case promoters wish to offer an indicative price, it should not be less than the floor price. It also made it clear that the indicative price is not mandatory.

Currently, if the price discovered through the reverse book building process (RBB) is not accepted by the promoters, a counter offer can be made by the promoters.

However, the counter offer price should not be less than the book value if the delisting were to be successful.

The paper has now clarified that the book value may be considered on both consolidated and standalone basis, whichever is higher, as per the latest quarterly financial results filed by the company on the stock exchanges, as on the date of public announcement for the counter offer. Similarly, in the event the price discovered through RBB is equal to the floor price, the promoter should accept the delisting price and will have no option of rejecting the delisting offer.

Results in two hours

The most important proposal is that the outcome of the reverse book building (RBB) in terms of its success or failure should be announced within two hours of the closure of the tendering period. Currently, there is no regulation mandating the disclosures regarding the fate of the RBB (i.e. meeting the target of 90 per cent shareholding) in a specified timeframe.

Further, unconfirmed bids should not be displayed in the exchange reverse book building window, the regulator has proposed.

Timelines

According to the proposal, the promoter(s) or acquirer(s) should make the public announcement of their intention to voluntarily delist the company to all the stock exchanges on which the company is listed, on the same day their said intention is intimated to the company.

The company should convene the board meeting within 21 working days from the date of receipt of the delisting proposal to consider and approve it.

The SEBI paper has also accepted stakeholders’ proposal to reduce the cooling off period for relisting of companies from the existing 5 years to 3 years.

Upon receipt of the delisting proposal, the company board should meet within 21 working days from the date of receipt of delisting proposal. While communicating its decision of granting approval for delisting, the board should also disclose merchant banker’s due diligence report and audit report to the stock exchanges, it further said.

These are the major decisions with respect to delisting since 2014 when SEBI had proposed the s90 per cent criteria of the total issued shares or aggregate percentage of pre-offer promoter shareholding and 50 per cent of the offer size to protect the interest of retail investors in delisting.

SEBI has sought comments by December 21 from all stakeholders.