Sebi may ease 'irritant' in new delisting framework

Chief U K Sinha says there is market opposition to requirement on 25% investor participation

The Securities and Exchange Board of India (Sebi) could take a re-look at the recently-introduced delisting regulations, its chief hinted on Monday.

“Many have problems with one aspect of the regulation…We will see how it pans out. If required, we will have a re-look. But first see how it pans out,” said U K Sinha, chairman, in his speech at the Association of Investment Bankers’ summit.

A clause in the new framework mandating participation from at least 25 per cent of public shareholders for the success of a delisting bid has drawn criticism from the market. Investment banking experts say this would pose a practical difficulty for promoters wanting to make an entity a private company.

Last month, the market watchdog had announced new guidelines for delisting, with a shortened timeline and tweaked price discovery. The new regulation, aimed at making the process easier and quicker, will come into effect once notified by Sebi. This typically happens within two months of board approval. It had done so on November 19.

According to the new norms, for a delisting bid to be deemed successful, the promoter shareholding should reach 90 per cent and at least 25 per cent of the public shareholders should tender their shares.

For instance, company X, with 100 shareholders in the non-promoter category, intends to delist. Then, irrespective of the quantity of shares in the category, at least 25 per cent of them should participate in a delisting bid for it to be successful.

“The 25 per cent rule will ensure wider participation. But Sebi should look at the value, instead. In most other regulations such as the takeover code, it is the quantity of shareholding that is given importance,” said Tejesh Chitlangi, partner, IC Legal.

There has been a representation to Sebi, highlighting low public shareholder participation in reverse book building (RBB) offers—a price discovery mechanism used for delistings. Experts say the percentage of shareholders tendering shares in an RBB is typically in single digits and this is making the market nervous.

Lack of a provision on shareholder participation was a loophole that companies were seen to be exploiting, the Sebi chairman explained. “If you look at what has happened in the past. we feel justified in what we are doing. There have been instances when delisting has been successful with only two shareholders participating,” said Sinha.

Sebi wants delisting companies to reach out to shareholders to ensure an offer is successful.

Convertible bonds
Sinha also said Sebi was looking at removing the disparity between foreign currency convertible bonds (FCCBs) and convertible bonds issued in local currency.

FCCBs have a maturity period of up to five years. Similar instruments when issued in the domestic market have a maturity period of only 18 months.

Sinha said a clause in the Companies Act needed to be amended to realign the norms and the regulator had started a discussion in this regard.

IPOs
On concern that Initial Public Offerings (IPO) were getting delayed due to regulatory approvals, the Sebi chief said they'd sped up the clearing process and the number of filings hadn't improved.

“We have set tight timelines (for clearing IPOs). The number of filings hasn’t improved. We hope it does as the investment climate improves. If our requirements are met, we will be clearing documents as fast as possible,” said Sinha.