Sebi deliberating on ways to grant promoters a say in delisting prices

The Securities and Exchange Board of India (Sebi) is deliberating on ways to grant  promoters a say in the price offered to shareholders of companies headed for delisting. 

Until now, shareholders have more heft in deciding the price at which shares should be tendered. But, promoters may now be given an option to provide a counter offer, and quote a price that may be lower than the price discovered during the delisting process, said sources in the know. This is one of the two proposals discussed by the Sebi-appointed Primary Market Advisory Committee a few days ago. 

A delisting announcement often leads to a rally in the stock prices of companies. According to experts, delisting happens at a 30-40 per cent premium to the current market price of the firm. So, after a delisting is announced, investors buy stocks mainly on hopes that the stock price will surge. 

Under the reverse book-building process, shareholders have an option to bid at a price higher than the floor price. The final price is one at which promoters' holding reaches the threshold of 90 per cent. There is no specific formula to arrive at a discovered price, and it often happens that a small group of shareholders come together and ask for a price that is significantly higher than the floor price. 

"In the past, we saw many delisting offers could not reach the desired results because the final prices were high and not acceptable to the promoters. In such a scenario, allowing promoters to make a counter offer would be a welcome," said Anjali Aggarwal, partner & head, capital market services, Corporate Professionals Capital. 

In the past three years, only 21 companies have tapped the market to voluntarily delist their shares, the Prime Database data reveals. Of these, 16 have successfully delisted, with Polaris Consulting & Services and Claris Lifesciences the two notable names delisting this year. 

Several multinational players which wanted to delist their shares in 2012, backed off and opted for stake sales instead. AstraZeneca Pharma India, for instance, decided to reduce its promoter shareholding to 75 per cent in March 2013 to comply with the Sebi requirement of minimum public shareholding after unsuccessful attempts at delisting its shares from the bourses.

It is not yet clear what percentage of shareholders will be required to accept promoters' counter offer for the delisting to go through if the new proposals are accepted. According to sources, this number could be pegged at 75 per cent.

"There might be certain technical or procedural issues that may need to be ironed out. Also, it remains to be seen if the shareholders who had earlier not participated in the delisting offer get a chance to bid under the counter offer," said Aggarwal.

Voluntary delisting can occur if a promoter holding exceeds 90 per cent in the company or if a promoter buys at least 50 per cent of the remaining public shareholding - whichever is higher. 

Sebi is also reportedly planning to set price bands for the delisting process to ensure the share price does not shoot well above the floor price. 

What makes delisting difficult is the need to get the nod of two-thirds of shareholders through postal ballot, establishing an acceptable price through reverse book-building and increasing the holding to the required threshold.