Board meeting date may be ex-date

Sebi mulls steps to curb abuse by speculators during delisting bids

To curb speculators from manipulating the share prices of delisting-bound companies, the Securities and Exchange Board of India (Sebi) plans to make the board meeting announcement date the ex-date to identify shareholders eligible to participate in the reverse book building (RBB) process, or the price-discovery mechanism used during voluntary delisting of shares.

An ex-date, in the case of delisting, is the date on or before which an investor has to own shares of the company.

The move will ensure only genuine and existing investors have a say in the delisting process and set the exit price, usually a bone of contention. Currently, investors can buy shares and participate in the delisting bid of a company even after the announcement of delisting.

WHAT IS REVERSE BOOK BUILDING?

• It is a price discovery mechanism used during voluntary delisting of shares
• Under this, shareholders can bid at various prices above or equal to the floor price
• Bids are accepted and matched by the exchange till the time the offer is open
• The price at which most bids are received becomes discovered price
• Company has to buy back shares from public at the discovered price
• Either 50% of public shareholding or 90% promoter holding (whichever is higher) has to be achieved for successful

 

Typically, operators or speculators start garnering shares of a company on buzz or announcement of delisting. Subsequently, these shareholders come together and dictate the exit price for delisting. Often, the exit price demanded is so high that the delisting bid fails, depriving exits to genuine shareholders and resulting in steep price corrections. Sebi is also exploring other options such as suspension of trading and price bands to arrive at more ‘realistic’ prices for delisting from stock exchanges, sources said. This month, the regulator would float a discussion paper on the new framework for delist offerings and receive feedback on various proposals, a source said.

In the past, several entities have made representations to Sebi to relax the criteria for delisting of shares.

 

The regulator, in November, had step an internal panel to address the structural issues with the delisting norms. The panel is said to have taken feedback from various market participants including investment bankers, companies and legal experts.