The Securities and Exchange Board of India (SEBI) released a consultation paper on August 14, 2023, on the recommendations of a sub-group of the primary markets committee, chaired by Keki Mistry. The consultation paper is a comprehensive document that addresses a wide range of issues related to de-listing and propose changes to the existing share buyback and voluntary de-listing norms.

The proposed changes aim to make the de-listing process more efficient and investor-friendly. One of the key proposals is to introduce a fixed pricing mechanism for de-listing. Accordingly, the acquirer would be required to offer a fixed price to all public shareholders, regardless of the market price of the shares. This provide public shareholders with greater certainty about the price they would receive for their shares.

Another key proposal is to tweak the reverse book-building process. Under the current process, the acquirer is required to make an initial offer to buy back shares from public shareholders. If the offer is not successful, the acquirer can then make a revised offer. The proposed changes allow the acquirer to make a revised offer without having to first withdraw the initial offer. This could actually help to speed up the de-listing process. The consultation paper also proposes to make changes to the counter-offer mechanism. Under the current mechanism, a public shareholder who has tendered shares in a de-listing offer can make a counter-offer to buy back the shares from the acquirer. The proposed changes would make it more difficult for public shareholders to make a counter-offer.

Likely impact

The potential impact of the proposed changes to the voluntary de-listing norms are many fold.

First, increased de-listing activity. The introduction of a fixed pricing mechanism could make de-listing more attractive to acquirers, as they would know exactly how much they would have to pay for the shares.

This could lead to an increase in de-listing activity, as more companies would be willing to de-list from the stock exchanges.

Second, improved protection for minority shareholders. The proposed changes to the counter-offer mechanism would make it more difficult for public shareholders to make a counter-offer to buy back the shares from the acquirer. This will certainly improve the protection for minority shareholders, as they would be less likely to be forced to sell their shares at a lower price.

Third, increased efficiency of the de-listing process. The tweaks to the reverse book-building process and counter-offer mechanism could help speed up the de-listing process. This is beneficial for both acquirers and public shareholders, as it would reduce the time and cost of de-listing.

Finally, increased transparency in the de-listing process. The consultation paper also discusses other issues related to de-listing, such as the calculation of the floor price and the role of the stock exchanges. This could lead to increased transparency in the de-listing process, which would be beneficial for all stakeholders.

It is also important to note that there are some concerns about the proposed changes. For example, the introduction of a fixed pricing mechanism could lead to acquirers paying too much for shares, which could hurt minority shareholders. Additionally, the proposed changes to the counter-offer mechanism could make it too difficult for public shareholders to protect their interests. SEBI will need to carefully consider these concerns before finalising the proposed changes.

Overall, the proposed changes to the voluntary de-listing norms are expected to have a positive impact on the stock market as they make de-listing more attractive to acquirers, improve the protection for minority shareholders, and increase the efficiency of the de-listing process. However, it is important to strike a balance between making the de-listing process more efficient and investor-friendly, while also protecting the interests of minority shareholders.

Saravanan is a professor of finance and accounting at IIM Tiruchirappalli, and Williams is an analyst at Sernova Financial

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