New delisting norms soon

Sebi to ensure higher public participation for delisting of company shares

The Securities and Exchange Board of India (Sebi) is set to introduce new norms to ensure higher public participation for delisting of company shares.

The new rules, which are expected to be notified shortly, will require promoters to acquire at least half the public shareholding in their respective companies to become eligible for delisting.

This marks a departure from current rules that do not specify a minimum level of public participation for delisting.

The new norms will, however, retain two crucial criteria of the existing rules "� the minimum threshold level of 90 per cent promoter holding and the price discovery through reverse book building.

Reverse book building allows shareholders to tender their shares at a price of their choice and the acquirer the freedom to accept or reject the offer. Once the reverse book building process is complete, the final price is determined as the price at which the maximum shares are tendered.

The new rules mean that the acquisition of shares by promoters for their companies to qualify for delisting will now depend on their shareholding levels. In effect, the rules will ensure that more shares need to be obtained from public shareholders before companies delist.

Experts describe this as an investor-friendly move. "In the recent past, many companies delisted shares with minimal public participation. This will be plugged now," said a company secretary of a diversified firm.

Blue Dart (promoter holding is 81 per cent), Atlas (83 per cent), 3M India, (83 per cent), i-Flex Solutions (80 per cent), Honeywell Automation (81.2 per cent), Timken India (80 per cent) and Monsanto India (72 per cent) are some of the companies with high promoter stakes.

Sebi has also decided to retain the existing reverse book building exercise, rejecting an alternative price mechanism that it had proposed in a concept paper. Sources said the Sebi board decided to do so, following objections raised by market intermediaries, including the bankers.

The capital markets regulator will also allow easy delisting norms for small companies having equity capital of up to Rs 1 crore. Sources said the new rules would allow promoters of these companies to get into an agreement with shareholders to fix the delisting price of the shares.

The new rules would help a host of companies listed on the regional stock exchanges to opt for delisting by getting into bilateral agreements with public shareholders, sources said.

Under the earlier rules, no exit opportunity was available for securities other than those with nationwide trading terminals "� that is, the Bombay Stock Exchange and the National Stock Exchange.

WHAT SEBI PROPOSES

Under current rules, the minimum promoter shareholding threshold for delisting a company is 90%

The new delisting norms require the promoters to buy at least half the non-promoter holding, keeping the threshold limit of 90% intact

For promoters holding up to 80%, there will be no change in their purchase of additional shares. Those holding more than 80% will have to buy more shares.

HOW IT WILL WORK

Example A: The promoter holding is 81%. Under the new delisting rules, the promoters must buy another 9.5%, or half of the public holding of 19%, taking total promoter holding to 90.5%. This means the additional purchase for such promoters above the 90% threshold is 0.5%

Example B: The promoter holding is 90%. They will have to buy 5% (half the public holding of 10%). So the additional purchase for such promoters will be 5% above the 90% threshold

Example C: The promoter holding is 30%. They will have to buy 35% (half of the public shareholding of 70%) plus 25% to reach the threshold limit for delisting. So their total additional purchase will be 60%. In effect, there is no change in delisting norms for this promoter group.