Shareholders of companies formerly listed on regional stock exchanges in a tight spot

The Securities and Exchange Board of India’s order to shut down regional stock exchanges in 2014 is causing a lot of trouble to investors. Through SEBI has provided investors with an exit route, there are many loopholes in the process, which loads it in favour of the promoters.

While providing an exit route for investors in shares traded on regional stock exchanges (RSEs), SEBI has given two options to companies — either list on one of the national stock exchanges or use the dissemination board opened on the BSE and the NSE to help investors sell their shares.

Many of the companies that were formerly listed on the RSEs have preferred not to list on national stock exchanges as they did not want to comply with the stricter disclosure norms and come under greater scrutiny. While they did list on dissemination boards, lack of awareness about these platforms resulted in the shares finding no takers. Promoters are now offering to buy back shares at seemingly lower valuations leaving investors with few choices.

The tight corner that investors in Schneider Electric President Systems (formerly APW President Systems) currently find themselves in, is a case in point.

Schneider Electric President Systems is a leading designer, manufacturer and supplier of standard and customised enclosure systems in India. Schneider Electric South East Asia (HQ) Pte Ltd is the promoter, holding 75 per cent of the shares. The company was listed on the Bangalore SE and Pune SE.

Schneider Electric has stated that it did not meet the minimum criteria of profitability and share capital to list on national stock exchanges. The company has been loss-making and only turned around in 2015-16, recording a profit of ₹6.3 crore from a loss of ₹3.7 crore in 2014-15. While the shares of Schneider Electric were moved to the dissemination board of the NSE and allowed to trade from July 2016, investors have not been able to find buyers for the right price.

In 2011, Schneider Electric South East Asia (HQ) Pte Ltd acquired 55 per cent of the share capital from the promoters and up to 20 per cent from public shareholders, offering ₹195/share.

Subsequently, a delisting offer was made in December 14, 2012, at ₹195 a share. But of the 15.12 lakh shares (25 per cent holding by the public), only 6.79 lakh shares (or 45 per cent) were tendered in the delisting offer. Of this, only 3.81 lakh shares were tendered at or below the discovered price of ₹250 a share. Hence, the delisting offer — which requires 90 per cent of the public shareholding to consent to the proposal for delisting — failed.

After four years, the company is once again offering an exit option to investors. But investors are displeased with the exit price of ₹200 a share as this do not take into account the company’s improving financial performance.

Pawan Kumar Saraf, an avid investor with 37 years of experience in the stock market, along with his family members holds about 43,000 shares (0.7 per cent) in the company. “The future prospects of the company appeared good given the backing of an MNC.” As expected, .

Net sales grew 63 per cent year on year in the December quarter. The EPS was ₹8.4 per share for the December quarter alone.

“If the stock was listed, it could easily have traded at ₹450-500. All this time the management assured us that they were in the process of listing. The exit offer at such low a price, has come as a rude shock to investors.”

Parikh, another investor feels that minority shareholders have been short-changed in the process. “Companies not migrating to a nationwide stock exchange should give its shareholders an exit price in accordance with SEBI’s 90 per cent threshold norm,” he said.

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