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Some investors oppose changes to delisting rules

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Mumbai: Some individual investors have opposed the changes to delisting regulations proposed by the Securities and Exchange Board of India (Sebi) on the grounds that the modified rules would make not be in the interest of minority shareholders. The recommendations by the capital markets regulator, if cleared, allow an acquirer to launch an open offer and delisting offer simultaneously by proposing two different prices and dilutes the concept of reverse book building — a process for efficient price discovery.

The capital markets regulator had sought public comments by July 16. Some investors have written to Sebi that the new proposals, especially the weakening of reverse book building (RBB) rules, could result in companies swinging the outcome.

sebi proposal

“A delisting price proposed by the acquirer would practically kill the very spirit of delisting regulations, and hence it must be done through RBB only with the price being discovered by public shareholders,” said Anil Jindal, director, Jindal Securities.

Sebi has proposed a fixed ‘higher price’ concept that the acquirer is willing to pay for delisting. This will be in place of the discovered price through reverse book building in which public shareholders can tender their shares at any price which they feel is the correct value of the shares.

The regulator has suggested that if the acquirer wants to delist, a differential pricing must be proposed. The open offer price for delisting should be higher than the minimum offer price. If the response from minority shareholders leads to the delisting threshold of 90% met, all shareholders who tender their shares must be paid the delisting price.

In a letter separately to Sebi, investors said that the proposed changes will shift the ‘bargaining power’ from shareholders to promoters. They do not want any changes in the RRB process.

“If the acquirer intends to delist, they must only do through RBB process having the price discovered by the public shareholders rather than given by the acquirer otherwise, the whole purpose of delisting regulations would be defeated,” said one of the investors in a letter to Sebi.

Currently, the acquirers not only have the option of accepting or rejecting the price discovered through RBB, but they can also make a counteroffer.

“Some of the proposed changes are fine but changing RBB process is unfair as far as small shareholders are concerned,” said Shriram Subramanian, founder of proxy advisory firm InGovern Research Services.

Investors cited the example of

Vedanta

and Linde India’s failed delisting offers. They said the RBB process alone protected the public shareholders from their shares being acquired at lower prices.

Last October, Vedanta made an unsuccessful delisting attempt at a floor price of ?87.25. But investors led by LIC demanded ?320 per share, a 267% premium over the floor price. Shares of Vedanta rallied 240% within six months to touch a high of ?296. Similar was the case in the failed delisting attempt of Linde India.

“The open offer and delisting offer are two completely different types of transactions with different expected outcomes and must run separately,” said Jindal.

“The factors which the investors consider while participating in the two are completely different and the method being proposed would be extremely complex for investors in making an informed decision.”

Investors have also urged Sebi not to change the special resolution stipulated in regulation 11 (4) of the Delisting Regulations. The rule says, “The special resolution shall be acted upon only if the votes cast by the public shareholders in favour of the proposal are at least two times the number of votes cast by the public shareholders against it.”

The proposal that a special resolution for approving delisting should be considered passed on the basis of “an affirmative vote by a majority of the minority shareholders” should also be dropped, said one of the letters. This rule will allow companies to pass delisting resolutions with approval from 51% of the shareholders instead of 66% as per the current rules.

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