Sebi floats paper seeking to grant promoters a say in delisting prices

The Securities and Exchange Board of India (Sebi) has floated a discussion paper that seeks to grant promoters a say in the price offered to shareholders of companies headed for delisting.

Until now, shareholders had more heft in deciding the price at which shares should be tendered. Under the reverse book-building process, shareholders have an option to bid at a price higher than the floor price. 

The final price is at which the promoters’ holding reaches the threshold of 90 per cent. There is no specific formula to arrive at a discovered price, and it often happens that a small group of shareholders come together and ask for a price significantly higher than the floor price.

According to the new proposals, the promoter may now be allowed to make a counter offer to the shareholders. If the counter offer is lucrative, and if accepted, the delisting should be deemed successful. The counter offer price should not be less than the book value and should be accepted by such number of public shareholders where the promoter shareholding reaches 90 per cent, the proposals state.

In the current scenario, the delisting price is often jacked up by arbitrage seekers, who may buy shares of the company through the secondary market route and disproportionately influence the price discovery by bidding at unrealistic levels. At times, some shareholders may form groups to bid at exorbitantly high prices in order to drive the high premium. 

“Small shareholders are unable to comprehend the reverse book building process, as unlike an IPO, there is only floor price and no price band. Without fully understanding the various attributes of valuation, such shareholders may end up bidding at very unreasonable level, which may totally vitiate the delisting process,” Sebi said in a note put up on its website on Thursday.

In the past three years, only 21 companies have tapped the market to voluntarily delist their shares, the Prime Database data has revealed. 

Of these, 16 have successfully delisted, with Polaris Consulting & Services, and Claris Lifesciences the two notable names having delisted this year.

Several multinational players that wanted to delist shares in 2012, backed off and opted for stake sales instead. AstraZeneca Pharma India, for instance, decided to reduce its promoter shareholding to 75 per cent in March 2013 to comply with the Sebi requirement of minimum public shareholding, after unsuccessful attempts at delisting its shares from the bourses.