Sebi's proposed delisting norms to boost re-listings, say experts

Companies particularly in IT space could look re-enter the market given attractive valuations for stocks in the sector

The Securities and Exchange Board of India (Sebi)'s proposed changes to the delisting framework could encourage companies to re-list, say experts. The market regulator has proposed to reduce the cooling off period between delisting and relisting from five years to three years.

“Sebi has acknowledged that a few delisting can take place to pursue strategic initiatives and accordingly have reduced the relisting period to three years, which will encourage relisting for some of the delisted companies,” said Ravi Dubey, Partner, IndusLaw.

Market observers said companies particularly in the information technology (IT) space could look re-enter the market given the attractive valuations for the stocks in the sector. Some of the recent delistings in the IT space include Polaris Consulting and Infinite Computer Solutions in 2018 and Hexaware Technologies more recently.

To be sure, the proposed regulations are yet to be finalised by Sebi and the relisting considerations will be driven by prevailing market conditions.

Experts said the proposed new norms will help tighten the delisting time-table and will make the process more efficient. Sebi has shortened the time period to convene a board meeting for approving the delisting proposal to 21 working days from the date of receipt of the proposal. Also, has set a definite time line for subsequent processes such as obtaining shareholder, exchange approvals and acceptance of discovered price.

“Some of the changes specifically relating to timeline may give greater visibility and efficiency to the process,” said Moin Ladha, Partner, Khaitan & Co adding that the move to bar disclosure of unconfirmed bids will help for shareholders to understand the status of the delisting bid.

In the recent past, there have been instances were promoters have expressed intent to delisting. However, there has been little progress in that direction. Many believe this is done to prop up the stock price and the proposed changes will help stop this practice.

Dubey said Sebi has also taken steps to bring in more transparency in the delisting process.

“The issue of information asymmetry has aptly addressed by requiring the promoters to disseminate their intention to delist to public in a real-time manner. Further, from a governance perspective, requiring committee of independent directors to provide their reasoned recommendations on the proposal for delisting is a change suggested by various proxy advisory firms in the past, and will grant much clarity to minority shareholders.”

While the new norms are aimed at making the delisting process more efficient, experts said little has been done to impact the fate of the delistings.

“None of these changes will impact the success rate of delisting offers. A number of delisting offers have failed because the price determined by the public shareholders through the reverse book building process is unreasonably high. Unless there is some reform in that area, delisting offers will remain less attractive,” said Vikram Raghani, Partner, J Sagar Associates.