Faster de-listing norms likely this month

Sebi's new regulations to halve delisting time; part of November 19 board meeting agenda

Companies could soon find it simpler to delist from a stock exchange. Sources indicate the Securities and Exchange Board of India (Sebi) is likely to clear an easier process at its board meeting on the 19th of this month. Delisting is a process by which a listed company, whose shares are traded on the stock exchange platform, is taken off the bourse by buying shares back from public shareholders. The shares of delisted companies can no longer be bought or sold through the exchange route.

The key regulatory changes include reducing the time required for delisting from 137 days to around 75 days, a one-time nod from shareholders and stock exchanges, and a requirement for a minimum of 25 per cent of public shareholders to participate in the delisting.

In May this year, the market regulator floated a discussion paper to ease the process. In the paper, Sebi had incorporated suggestions on removing the requirement for prior approval of shareholders by a special resolution and in-principle approval from the stock exchange, to reduce the delisting process timeline. Sebi has decided on doing away with the requirement of a postal ballot from shareholders, to address corporate governance concerns that would have arisen otherwise. “While Sebi had incorporated other suggestions as part of the discussion paper, it did not necessarily endorse them. Now, only a one-time approval from shareholders and in-principle approval from stock exchanges (to be given within five days) would be required for delisting to go through,” said a source.

Currently the in-principle approval from stock exchanges takes a month and a postal ballot from shareholders could take close to two months.

Market participants say the existing delisting norms that were aimed at protecting investors also made it difficult for companies to delist. "The huge time period that came with delisting gave certain entities an opportunity to take significant positions in the company, thereby influencing price discovery. The promoters in some instances have had to pay significant premium over the market price, so reducing the timeline is certainly a move in the right direction,” said Debanik Basu, analyst, IIAS proxy advisors.

Sebi in its final regulations will retain the requirement of the acquirer to reach 90 per cent of the total issued share capital. Also,  25 per cent of public shareholders should be a part of the delisting for it to go through.

Legal experts opine that the regulator while making the final regulations should have provisions to tackle insider trading. To deal with the issue, the regulator is exploring the idea that a company could be barred if the promoter is found to be selling shares six months before the delisting proposal comes up for consideration before the company’s board.

“If a company goes for delisting, it means that there has to be knowledge with the decision makers. They should not acquire shares or their shares should be locked in to ensure that insider trading does not occur. The information regarding delisting could be price sensitive in nature, so this aspect needs to be covered in the new delisting regulations,” said Vaneesa Abhishek, a lawyer.

GOING OFF THE EXCHANGE

• Regulator to reduce timeline to delist to 75 days
   
• Sebi to insist on one-time nod from shareholders
   
• Bourses to grant in-principle approval in 5 days to delist
   
• 25% public shareholders need to participate for delisting to go through
  

 

Promoters could be barred if found selling shares six months before delisting is cleared by board