Market regulator SEBI has notified several key changes to its Delisting Regulations so as to usher in numerous elements of ease of doing business for promoters during the delisting process. These changes have been notified nearly three months after SEBI Board gave its nod for the same in June 2024.
The most significant change is allowing a fixed price process as an alternative to the current reverse book building (RBB) route for delisting of shares.
However Promoters wishing to use fixed price process must fork out minimum premium of 15 percent over the floor price under the delisting regulations.
Also the reference date for computation of floor price has been changed from existing requirement of date of board approval to the date of initial public announcement. SEBI has also introduced concept of adjusted book value as determinant of floor price. Earlier the book value was a parameter that was reckoned for illiquid scrip, but this has now been introduced for liquid scrips as well. However, a carve out for this has been provided in respect of public sector entities.
Investment Holding Companies
Apart from introducing ‘fixed price’ process, SEBI has specified separate framework for delisting of investment holding companies.
Hitherto, investment holding companies were facing difficulties to delist because of holding company discount and other related matters.
SEBI has now facilitated investment holding companies to delist through a scheme of arrangement. Such companies have been allowed to do selective capital reduction and they will be able to pass off the benefit of encashment of their holdings to the extent they are holding liquid or listed shares to their investors. This route will be allowed only when atleast 75 percent of their fair value must be directly held in listed companies.
Another change now introduced by SEBI is that it has made counter offer mechanism in a delisting process much more flexible.
Manmeet Kaur, Partner - Karanjawala & co, said from introducing a fixed pricing mechanism in addition to RBB presently permissible, the amendments specifically address the delisting of investment holding companies, which are primarily focused on holding investments rather than carrying on commercial activities.
This distinction is important because the valuation and exit mechanisms for such companies differ from those of operational entities, Kaur added.
To be eligible for delisting, the listed investment holding company will need to have more than seventy-five percent of its fair value comprising direct investments in equity shares of other listed companies, which will be determined by independent registered valuers.
“These changes aim to provide clarity and ensure fair valuation during the delisting process”, Kaur said.
Anjali Jain, Partner at Arness Law, said that the introduction of this fixed price process would not only facilitate price certainty but also attract conservative acquirers who intend to participate with limited/calculated considerations.
The impact of the new mechanism would though be tested by market participants, but its competitiveness cannot certainly be undermined as shareholders participation in the fixed process is relatively phased out, she added.
Additional changes in the RBB process is also proposed as counter-offer can now be made only if acquirers attain a minimum total ownership of 75 per cent, down from the previous threshold of 90 percent, while ensuring that at least 50 percent of public shareholders accept the initial offer, she added.
Jain highlighted that special provisions for delisting of investment holding companies would now ensure smooth delisting of the said distinct category. Earlier, no navigating guidelines existed for smooth delisting such entities, she said.
Notably, the special provisions mandates e-voting, requiring public shareholder approval at a two-to-one ratio, and imposes a three-year moratorium on relisting following delisting, she added.