Sebi wants 25% premium for delisting of firms

The Securities and Exchange Board of India (Sebi) on Thursday proposed a substantial increase in the offer price set by companies for delisting shares from stock markets. The move is aimed at helping small investors realise a higher price while tendering their shares to promoters for delisting.

Under the proposal, the offer price would have to be at least 25 per cent more than the floor price set for buying back the shares from public shareholders, or a fair value determined by an accredited rating agency added to a premium of 25 per cent, Sebi said.

In a concept paper on the proposed SEBI (Delisting of Securities) Regulations, 2006, the capital market regulator also proposed to correct the anomaly with regard to the reference date for calculation of floor price.

According to the proposal, the floor price would be determined by the date on which the stock exchanges were notified of the board meeting at which the delisting proposal was considered.

This is to "correct the anomaly" that existed now, given that there was "fluctuation in the price from the time the decision to delist is taken by the board (of companies) and the public announcement," Sebi said.

The regulator has invited public comments on the concept paper by December 14.

The changes have been necessitated since it was increasingly felt that the "book building process, which was to aid in the determination of a fair exit value for shareholders, was not fully achieving the said objective and the perceived investor friendliness of the price discovery mechanism was not necessarily translating into genuine discovery of price," it said.

With regard to eligibility criteria for delisting of shares, Sebi said it wanted to introduce a level of 10 per cent of public shareholding (in consonance with international practices) as the breach percentage level for delisting. It also proposed to introduce a minimum subscription level for delisting offers.

"The success of the offer depends on a minimum subscription resulting in the public shareholding reducing below 10 per cent or 4 per cent. Thus, the promoter holding should breach the 90 per cent or 96 per cent level, as the case may be, depending on the categorisation of the company," the concept paper said.

The new proposals come in the wake of a realisation that the existing book building process for price discovery was giving "disproportionate powers, with public shareholders holding a major chunk, possibility of frivolous bids to destabilise the delisting offer, freedom to promoters to reject the price discovered and revision of bids leading to cartelisation in the price discovery," Sebi said.

Further, under the new proposal, the book building mechanism would be available to all shareholders "" both in demat mode and as physical shares. Earlier, this was available only to demat shareholders.