The Securities and Exchange Board of India (Sebi) has announced significant revisions to the delisting procedures, giving promoters a greater chance of taking their firms private within a set pricing structure. The regulator has also issued new guidelines to make it easier to delist investment holding companies (holdcos).
In addition to the Reverse Book Building (RBB) procedure, Sebi has implemented a fixed price mechanism in which promoters can offer to purchase back all shares from the public at a minimum 15% premium to their "fair price".
"In case the acquirer has proposed delisting through the fixed price process, the acquirer shall provide a fixed delisting price which shall be at least 15 per cent more than the floor price calculated in terms of regulation 19A," according to the notification issued on September 25, 2018. Furthermore, the acquirer will be eligible for delisting under the fixed price method only if the company's shares are frequently traded.
"This new regime allows existing promoters to delist their entities at a fixed price, with a 15% premium to the floor." This is in addition to the currently existing bidding route (RBB). Gautam Gandotra, partner at Cyril Amarchand Mangaldas, stated that in any given circumstance, whether to choose the new or old approach must be determined by what the important public shareholders will tolerate." Sebi has set parameters for calculating the floor price of equity shares recommended for delisting via the RBB or fixed pricing processes.
The Sebi stated that it should not be less than the maximum price paid for any acquisition during the 26 weeks preceding the reference date, the volume-weighted average price paid by an acquirer during the 52 weeks preceding the reference date, or the adjusted book value, among other criteria.
The RBB framework is regarded as particularly severe since the delisting price arrived at through this process is sometimes fairly high, rendering the offer unworkable. Though the revisions are effective as of September 25, any acquirer may submit a delisting offer in accordance with the existing criteria for the following two months.
Furthermore, Sebi has decreased the bar for the counter-offer mechanism from 90% to 75% of public shareholders. Under the RBB procedure, the delisting process is considered effective if the promoter or acquirer's post-offer aggregate ownership exceeds 90%.
"In case of delisting through the reverse book building process, a counter-offer may be made by the acquirer to the public shareholders, provided the post-offer shareholding of the acquirer, along with the shares tendered by public shareholders, is not less than seventy-five per cent and not less than fifty per cent of the public shareholding has been tendered," according to the rule.
To be eligible for delisting, investment holding firms must have at least 75% of their fair value invested directly in equity shares of other listed businesses, according to Sebi. Two independent valuers will create a combined report to assess the fair value. The market authority has said that shares of delisted holdcos will be ineligible for relisting for a period of three years following the delisting.
