Delisting has suddenly started grabbing attention as some marquee promoters like Vedanta, Adani Power, Hexaware have been considering or chosen to opt for this route, subject to their obtaining necessary regulatory and shareholder approvals. The name of a liquor major has also been doing the rounds. Suddenly there is a lot of buzz and flurry of activity in this space.
Are we entering a Season of Delisting?
It will therefore be worthwhile to do a deep dive and understand the many nuances, procedures and benefits with regard to Voluntary Delisting of equity shares of widely traded companies and not “small companies” with sparse trading which are subject to different rules.
Delisting can be both voluntary or Forced. In case of latter, delisting process may get triggered in case the company fails to comply with listing requirements or due to serious regulatory violations etc. In such an event the minority shareholders may find themselves forced to sell their holdings at a price which may be lower than the enterprise value or its peak price. Whereas in case of Voluntary delisting, the owners and promotors choose to delist themselves to gain operational and financial flexibility, stability to run their business and also when promoters are planning to restructure their business or raise their stake.
If the timing of the delisting is during a market downturn the promoters may get the chance to buy back their shares at a discounted price compared to the fair value. However, in this case, the non- promoter shareholders and especially the Institutional Shareholders have a big role to play, not just to protect their own interests, but in the bargain indirectly take care of the minority shareholders’ interests, as well. However, for well managed and profitable companies, the promoters may be willing to pay premium & reward the shareholders and delist.
Securities and Exchange Board of India has issued the SEBI (Delisting of Securities) Guidelines 2009 and subsequent amendments for delisting of shares from stock exchanges. The guidelines provide the overall framework for voluntary delisting by a promoter.
What are the key steps involved?
- A Board resolution has to be passed proposing delisting, prior intimation to the stock exchange must be sent accompanied by a special resolution for prior approval of shareholders through postal ballot after disclosure of all material facts in the explanatory statement.
- Make an application to the Stock Exchange for in-principle approval of the proposed delisting in the form specified.
- Appointment of an Investment Banker to carry out Due Diligence.
- A public notice of the proposed delisting should be published in at least one English national daily, one Hindi national daily and one regional language newspaper of the region where the stock exchanges are located.
- Before making the Public announcement, an escrow account has to be opened by the promoter for depositing the total consideration calculated on the basis of the floor price and number of shares outstanding with public shareholders.
- Post the Public announcement, the promoter shall despatch the Letter of Offer along with a bidding form to the Shareholders within the stipulated time.
- Delisting will be conducted through the book building process and final price will be the price quoted by the majority of shareholders.
- Promoter has the right to either make a counter offer or reject the offer. If the promoter accepts the offer then the final price is communicated to the shareholders.
- For successful delisting the post offer promoter shareholding along with the stake of public shareholders and eligible bids at the final determined price has to reach 90%.
- An announcement of the closure shall be made in the same newspapers and thereafter payment to all eligible shareholders will be done against shares tendered.
- Post that the company will have to tender the final application to the Stock exchanges requesting for delisting of shares from the stock exchange.
What is Reverse Book Building?
It is a mechanism provided for capturing the sell orders on online basis from the shareholders through respective Book Running Lead Managers, which can be used by companies intending to delist its shares through the buyback process. In the Reverse Book Building scenario, the Acquirer/Company offers to buy back shares from the shareholders.
The Reverse Book Building is basically a process used for efficient price discovery. It is a mechanism where, during the period for which the Reverse Book Building is open, offers are collected from the shareholders at various prices, which are above or equal to the floor price. The buyback price is determined after the offer closing date.
How does it work?
- The acquirer shall appoint designated Book Running Lead Manager (BRLM) for accepting offers from the shareholders.
- The company/acquirer intending to delist its shares through Book Building process is identified by way of a symbol assigned to it by BRLM.
- Orders for the offer shall be placed by the shareholders only through the designated trading members, duly approved by the Exchange.
- The designated trading members shall ensure that the security / shareholders deposit the securities offered with the trading members prior to placement of an order.
- The offer shall be open for ‘n’ number of days.
- The BRLM shall intimate the final acceptance price and provide the valid accepted order file to the National Securities Clearing Corporation Limited (A wholly owned subsidiary of NSE carrying out clearing and responsible for settlement operations).
So, if you are a shareholder of a company that is planning to delist, acquire adequate knowledge, assess all possible scenarios and take a considered decision. Remember by buying shares of a company you are also a part owner of the business and therefore have an important responsibility to fulfil at the time of its delisting and protect your interests.
Source: SEBI & NSE