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Another Step towards An Efficient Delisting Mechanism

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On 9 May, 2014, SEBI released a discussion paper to review the existing delisting regulations in India. The discussion paper is in light of various concerns raised by market participants about the prevalent delisting process, such as those relating to the reverse book building process, insufficient demand and time taken. Further, investors apprehend that acquirers first park their shares though offer for sale or informal arrangements with a group of investors, and later acquire such shares at a predetermined price in the delisting offer. In this manner, promoters or acquirers affect true price discovery and transgress the delisting regulations.

SEBI has proposed various alternatives to the existing model of price discovery and measures to increase participation in the reverse book building process. Further, to shorten the delisting process, an indicative timeline has been proposed which could shorten the delisting process from 137 days as it stands today, to 64 days. Currently a delisting process happens in 4-6 months. SEBI has proposed to discontinue with the requirements of prior shareholders' approval by special resolution which typically takes 30 days, and in-principle approval by the stock exchange which is done within 30 days. Further, SEBI proposes to bring the minimum shareholding threshold for a successful delisting in line with international best practices, that is, of 90% of the shareholding. Currently the shareholding of the promoter or acquirer post the offer has to be either 90% of the total issued share capital or the aggregate percentage of pre offer promoter shareholding and 50% of the non-promoter shareholding, whichever is higher.

At present, only public shareholders are allowed to participate in the delisting process but the discussion paper moots the possibility of involving depository receipt holders in the delisting offer to enhance participation. It has also been suggested that allowing investors to tender their shares through a stock exchange platform may help in increasing retail participation as it would be more tax efficient.

The proposed review of the delisting regulations by SEBI has been overdue since past experience has raised practical problems in the working of the regulations and has highlighted the shortcomings of the existing scheme of delisting.