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Amendments to the Delisting Regulations

Finsec Law Advisors

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In its board meeting on September 18, 2018, SEBI has approved the following amendments to the SEBI (Delisting of Equity Shares) Regulations, 2009 (“Delisting Regulations”) - (a) counter offer in case of voluntary delisting; and (b) timeline to provide an exit in case of compulsorily delisted companies.

Under the current Delisting Regulations, the offer price has to be determined in accordance with the reverse book building (“RBB”) mechanism. Under the RBB mechanism, once a floor price is determined, bids are invited from the public shareholders. The highest price at which the maximum number of shareholders place their bids would become the offer price, and the delisting would be successful if the post offer promoter shareholding reached 90%. The promoter can either accept or reject the offer price determined through the RBB mechanism.

As per the new amendment, in case of voluntary delisting, if the price discovered through the RBB mechanism is not accepted by the promoters, a counter offer, being not less than the book value, can be proposed by them. The amendment is beneficial to a number of promoters who may be contemplating delisting, since this gives them an option to make a counter-offer; as opposed to just accepting or rejecting the price determined by the RBB mechanism.

Another amendment approved by SEBI is in relation to the timeline for providing an exit option in case of compulsory delisting. Compulsory delisting is when the securities of a company are removed from stock exchange for non-compliance with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The promoters will now have to provide an exit option to existing shareholders within 3 months of delisting from the recognized stock exchange. This is a welcome move, as it will ensure that promoters of compulsorily delisted companies do not intentionally delay providing the exit option to the public shareholders.