Private firms in India often cite high entry and exit barriers to the public market, as the key reason why they aren’t keen to list. While public offer norms have been tweaked to allow new-age firms to list, Securities Exchange Board of India’s (SEBI’s) regulations on de-listing of companies through the reverse book-building route remain stringent. A majority of de-listing attempts has failed in recent years with Vedanta, TTK Healthcare, R Systems and Linde India being recent examples.

De-listing offers fail due to multiple reasons. Sometimes, a few operators corner the shares and bid unrealistic prices to exit. Shareholders, at times, do not tender the required 90 per cent shares. Sometimes, the promoter tries to pull a fast one by setting an unfairly low floor price for exit. SEBI’s new consultation paper on de-listing tries to balance the opposing interests of public shareholders and promoters and improve the success rate. The paper has many measures to make life easier for companies seeking to exit the bourses. The most significant one is allowing promoters to use an alternative fixed price route to buy back shares. This will allow promoters to completely omit discovery of exit prices through shareholder bidding and to offer a single price instead. While this proposal, by itself, may lead to promoters skipping the reverse book-building route, a couple of checks have been placed to protect investors. The fixed price cannot be lower than the floor price prescribed for book-building and the promoter will still need to mop up 90 per cent of shares. A higher bar is being set on the floor price too.

The current formula for floor price in de-listing is the same as that for open offers in takeovers. But logically, de-listing prices ought to be higher to compensate investors for permanent loss of opportunity. Therefore, the paper suggests that the Adjusted Book Value of the company also be a used as a criterion to fix the floor price along with the recent traded price of the stock. This is a very welcome move which will prevent promoters, particularly in cyclical sectors, from buying out public investors at throwaway prices during downturns. To discourage rigging in the stock to influence the floor price, the reference date for calculation will be changed from the date of the board meeting (which comes later) to the first intimation of de-listing.

Currently, if the discovered price is not acceptable, the acquirer can make a counter-offer, but only after 90 per cent shares have been tendered. The paper suggests lowering this threshold, which is practical. But the complex formula prescribed for the threshold (higher of half of public shareholding or difference between promoter’s shareholding and 75 per cent) could have been avoided. The counter-offer must be at the higher of the weighted average price of bids received, or the floor price. The proposed changes can smoothen the process. But as acquirers will still need to mop up 90 per cent of the shares to de-list, it will be no cakewalk for them.

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