Pricing Formula For Delisting Shares Likely To Be Changed

The Securities and Exchange Board of India (Sebi) is likely to change the present pricing formula, which stipulates a company to offer at least the six months' average price of the stock, for delisting its shares.

Sources close to the development said the market regulator, which has appointed a committee under the chairmanship of Sebi executive director Pratip Kar, was not against the delisting of shares per se.

Sebi believes that companies must have the right to exit in a free economy without hurting retail shareholders' interest. "The only way Sebi can protect investors' interest is by restructuring the pricing formula," sources said.

Sebi chairman G N Bajpai preferred to remain noncommittal on the issue." A committee has been appointed which is at an advanced stage of coming out with its recommendations. I think I should not influence judgment on the issue right now," he said.

Bajpai said the committee is expected to submit its recommendations within a month. The issue of multinational companies delisting shares from the Indian bourses has generated a lot of heat in the recent past.

The complaints against the delisting move is two pronged. With blue chip MNCs moving off bourses, the India capital market was losing much of its sheen. Secondly, retail investors were being hurt in the process.

Sebi has recently qualified a host of delisting price offer, including that of some global majors, on the basis that the calculation of the six months' average price was not done according to Sebi guidelines.

A host of issues are under investigation whether open offers of some companies, willing to delist, were fixed correctly.

The main area of contention in the present formula was the cut-off date from which the calculation should be made. More complicated are the cases of open offers following changes in management control.