SEBI proposals may herald a smooth delisting process

A recent attempt by the Chennai-based TTK Healthcare promoters to delist the company’s shares from the exchanges came a cropper, as the offer could not draw enough interest from public shareholders.

The “Woodwards Gripe Water” maker, on April 5, had announced its promoters’ intention to delist the stock from the exchanges by acquiring shares from public shareholders. The moment the announcement came, the stock that was hovering well below ₹1,000 for most part of the March, spurted to a high of ₹1,475 on April 6.

On April 20, TTK Healthcare fixed the floor price at ₹1,051.31 a share for voluntary delisting and further sweetened it to ₹1,201.30 on July 4, as the stock was hovering well below ₹1,200.

However, the offer failed, as the company could muster only 17.03 lakh shares as against the book size of 35.94 lakh shares. The issue would have been deemed successful had it managed to acquire another five lakh shares from the public. It failed due to a stringent norm — that the cumulative holding by acquirers or promoters post delisting should be at least 90 per cent of the paid-up equity capital of the company.

TTK Healthcare is not alone and the list is long. Two major reasons for the failure of delisting are insufficient shares tendered by public shareholders in the reverse book building process (RRB) or the price discovered through the RBB process being much higher than the floor, which the promoters reject. There are some hindrances to promoters making a counter-offer too to make the delisting successful.

Making it easy

SEBI has now turned its attention to make delisting easier.

Towards achieving this goal, a SEBI sub-group of the primary markets advisory committee, led by industry veteran Keki Mistry, recently came out with a consultation paper on delisting.

As some shareholders disproportionately influence the outcome of the RBB process, the panel has now mooted an alternative in the form of a fixed price concept.

The fixed price route will give acquirers and shareholders certainty with respect to pricing of the delisting offer. This would help shareholders decide upfront whether to participate in the delisting process or not at the given price. This could also benefit an acquirer in arranging funds for such delisting offers as the price at which the exit offer will be made is known. Fixed price will also minimise the speculation that emerges pursuant to the announcement of delisting as in the case of TTK Healthcare.

Counter-offer

SEBI paper has also addressed another important aspect of making a counter-offer. Currently, promoters/acquirers can make a counter offer only if they achieve 90 per cent of the equity capital of the targeted company post-offer. Often, they failed to achieve this.

Now it has proposed allowing the acquirer to make a counter-offer if the bids received are higher of: the difference between the acquirer’s shareholding and 75 per cent of the total issued shares of the company; and 50 per cent of the public shareholding.

Retail shareholders need not fear that the move may affect them, as the companies can now easily delist according to their whims. For any delisting proposals to pass through, super majority of minority shareholders need to approve the proposal. Besides, if they really feel it is loaded against them, then they always have the option of staying away, making the 90 per cent threshold difficult to achieve.

Both listing and delisting of securities should be a smooth process for a vibrant capital market. And SEBI’s recent move may help in achieving that.