Value of delisting offers at record-high amid pandemic surge, shows data

Acquired amount also among highest on record

The amount offered by majority shareholders to take their companies off bourses has been the highest in the current financial year, compared to the last 17.

The value of such delisting offers in FY21, so far, stands at a record Rs 22,165.5 crore, show numbers from Prime Database.

With one month still to go in the financial year, this is already the highest since records are available — since FY04. It is a whopping 4x the previous high of Rs 5,479.4 crore in FY16.

During delisting, majority shareholders (promoters) buy back shares from the public to take the company off the stock market.

The amount acquired from minority shareholders through such offers in FY21 — at Rs 4,199.8 crore — was the second highest since FY04. Of the total amount, a few large companies accounted for the bulk of the share.

Rising markets are typically not a good time for delisting since it becomes more expensive to take companies off bourses, according to Pranav Haldea, managing director (MD) at Prime Database. “It is typically a bear market phenomenon,” he said.

Stock market valuations had crashed in the initial part of the year because of the Covid-19 pandemic.

Vedanta’s delisting bid in May 2020 alone accounted for the bulk of the amount on offer to buy back shares. Its announcement in October 2020 of not going ahead with the offer also meant a lower amount spent on overall acquisition. There have been 14 such offers during the year in total.

“All sorts of stocks got lifted in the current bull run, given the liquidity in the market. For many companies, which should not have listed in the first place, given their business models, valuations and the stock price would be lower for an extended period. So, when the valuation is high, smaller shareholders who are stuck with the stock for a long time gladly exit when the company comes up with a delisting plan,” said Skanda Jayaraman, head of investment banking at Spark Capital.

Hexaware Technologies announced a successful delisting in September. It said in a public notice that it would be acquiring 8.7 crore shares. The price arrived at for the delisting offer was Rs 475 per share. This accounted for the bulk of the money spent on delisting during the year.

Adani Power had also announced it would be looking to acquire shares for delisting at a price of Rs 33.82 per share. It would have to spend over Rs 3,000 crore to buy out public shareholders entirely.

Sebi prepared a consultation paper in November 2020 to improve the existing delisting framework. 

Changes proposed included shorter timelines for concluding the offer, and requiring promoters to accept the delisting price if it is the same as the minimum price given earlier.

The move was seen to help iron out issues in the delisting process, Business Standard had reported, as valuations would remain key to the success of delisting.  

“The floor price is already known to the promoter and the entire delisting process (including formation of escrow account, depositing of amount by promoter, bidding by shareholders, and deposit of shares by shareholders, among others) progresses based on the floor price. The promoter shall be bound to accept the delisting price and not have the option of rejecting the delisting,” said the consultation paper.