The Securities and Exchange Board of India (SEBI) in its board meeting held on June 27, 2024, approved amendments to SEBI (Delisting of Equity Shares) Regulations, 2021 ("Delisting Regulations"). The key changes approved by SEBI are as follows:
Fixed Pricing:
SEBI approved introduction of "fixed price process" as an alternative to the "reverse book building process" ("RBB") used for the delisting of companies whose shares are traded frequently on the stock exchange.
Under the previous Delisting Regulations, the process of price fixation under Regulation 20 is as follows:
- Floor price is fixed in accordance with Regulation 8 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 ("Takeover Code").
- The acquirer has an option to provide an indicative price, higher than the floor price.
- Discovered price is determined through the RBB process as under Schedule II of the regulations ("Discovered Price").
Under the alternate method of "fixed price process," the acquirer can offer a fixed price which must be at minimum 15% premium over the floor price determined under Regulation 8 of the Takeover Code.
Adjusted Book Value:
SEBI has introduced "Adjusted Book Value" as an additional parameter to determine floor price, except for public sector undertakings. This parameter considers the fair market value of the company's assets for determination of the floor price. In accordance with this amendment, for frequently traded shares, under Regulation 8 of the Takeover Code, the floor price will be determined as the highest among: a) the volume weighted average price paid for acquiring shares over the preceding 52 weeks of the company; b) the highest price paid for any acquisition of shares over the previous 26 weeks of the company; c) the volume-weighted average market price over 60 trading days preceding the reference date; and d) the Adjusted Book Value, as determined by an independent registered valuer, considering consolidated financial statements of the company.
Reduced Acceptance Threshold for Counter Offers:
Under Regulation 21(a), in relation to the RBB process, the offer is only deemed to be successful if after the offer, the shareholding of the acquirer along with the shares offered by the public shareholders accepted as eligible bids at the Discovered Price reaches 90% of the total issued shares of the class. The acquirer is bound to accept the equity shares offered in the delisting if the Discovered Price is equal to or more than the floor price but less than or equal to the indicative price. Under Regulation 22(4) if the 90% threshold is reached at a Discovered Price greater than the indicative price, the acquirer has the option to make a counter-offer, at a price not lower than the book value of the company.
If the acquirer makes such counter-offer, the public shareholders are given an opportunity to tender their shares once more at the counter-offer price. The delisting would be successful if the shareholding of the acquirer along with the shares offered by the public shareholders accepted as eligible bids at the counter-offer price reaches 90% of the total issued shares of the class.
This has led to instances where minority shareholders, holding sufficient shares to ensure that 90% threshold was not met, would make exorbitantly higher bids than the indicative price, or not accept the counter-offer made by the acquirer, blocking the offer of delisting. Several companies have faced such roadblocks in their delisting process over the years. For example, in 2023, Shreyas Shipping and Logistics failed in its attempt to delist from exchanges as the counter-offer made by the promoters' entity, Transworld Holdings, failed to meet the threshold of 90%. However, SEBI has now approved a reduced threshold from 90% to 75%, provided that at least 50% of the public shareholding is tendered pursuant to the counter-offer.
Delisting of Investment Holding Companies (IHCs):
SEBI has also approved delisting for Investment Holding Companies (IHCs) which derive a minimum of 75% of their fair value (net of liabilities) from direct investment in other listed entities through selective capital reduction of the shares held by its public shareholders. IHCs holding shares in other listed companies will be permitted to transfer the underlying equity shares held by them to their public shareholders on a proportionate basis. Further, IHCs holding shares in unlisted companies will be permitted to make proportionate cash payments as consideration to their public shareholders. On extinguishment of entire public shareholding, the IHC will be delisted.
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