Proposed Regulations “SEBI (Delisting of Securities) Regulations, 2006”

At the outset I would have expected SEBI to come out with some amendment in the process of Reverse book building rather than scrap it. The Reverse Book Building process is a good concept and passes the test of ‘equity’. It should be adopted with some modifications.

I find the following observation of SEBI, not acceptable.

a) In the preamble of the proposed change it is written in 2(a) “Disproportionate Powers with public share holders holding major chunk” this is not correct because the powers are directly in proportion to number of shares held, if this is changed then the process of equity & natural justice would be negated. My suggestion seeks to take care of the situations that might have prompted this statement.

b) In clause 2(b) it is stated “Possibility of frivolous Bids to destabilize the delisting offer” It is not correct to label bids as frivolous. No bids can be frivolous since they are backed by actual amount invested.


It seems that SEBI by the proposed Regulation, is favouring delisting of more cos. Which should not be the case. At various places suggestions have been made to take care that listing is encouraged.

PRICING MECHANISM

It was seen in the past in some cases that due to some large investors the entire process of delisting failed. Although , I do not want to take away from such large shareholders, their right to bid at a price they think fit, but I would like to give an opportunity to the other small share holders and the promoters as well to proceed ahead with what they think is fair price. The pricing mechanism should be altered to as follows:
a) The minimum exit price should be at 25% premium to the floor price, as suggested in the present draft.
b) The price discovery as per the present guideline on Reverse Book Building that gives the rate at which maximum no. of shares are offered
c) The rate at which maximum no. of shareholders have offered the shares. This will take care of a few shareholders holding major chunk and unduly flexing their muscles.

In case the highest discovered price is not acceptable to the promoter, they may indicate the price acceptable to them which could be either of a),b) or c) above.

The shareholders will have the choice to either accept or reject such price offered by the promoters.

ABSENCE OF MINIMUM SUBSCRIPTION

In the present circumstances & even in the draft, the offer fails if a minimum threshold is not reached. It must be appreciated the whole exercise is quite cumbersome & costly. The promoters & the investors both must be given an option to accept shares tendered even when the minimum threshold is not reached and the company does not become eligible for delisting. Might be the offer should be named “ Open offer with delisting option”

Since in any case the promoters are following the guideline given under SAST for consolidation of their holding.

However in such a case, it should be made a condition that after such offer and acceptance, in case the promoters come again with another delisting offer or purchases shares at a higher price within a period of 3 years, then, such higher price should be paid to the shareholders who had earlier accepted the offer at a lower price.

COMMENTS ON VARIOUS OTHER CLAUSES OF THE DRAFT

a) Clause 4(5) doesn’t permit delisting of convertible securities. This should be omitted.

b) Clause 10(1) Public announcement is directed to be issued in one English and one Hindi, national dailies & one regional language news paper of the region where the concerned stock exchanges are located.

This should be changed to regional language newspaper of the place where the registered office of the company is situated or the place where there is highest concentration of individual shareholders.

This is on the premises that the stock exchanges are located in metro cities & the investors living there are by & large much better educated & informed as compared to some rural areas where the factory of the company may be situated and workers etc. may be holding a significant chunk of shares.

c) Clause (6) Term associate should be defined .

d) Clause 12(1) The responsibility for dispatch of letter of offer has been cast on the promoters only whereas the responsibility for public announcement (refer clause 10(5) ) has been cast on promoters & merchant bankers jointly. Uniformity must be maintained at both the places and merchant banker should be added at 12(1).

e) Clause 14(4) (b) states that fair value of the securities should be determined by registered Credit Rating Agency, whereas clause 21(1) states that stock exchange shall appoint independent valuer. The term valuer has been defined to mean a Chartered Accountant or Merchant Banker.

Uniformity should be maintained throughout the regulation & the term valuer should be replaced at 14(4) (b) instead of Credit Rating Agency and explanation to 21(1) (a) defining the word valuer should be modified to include, Chartered Accountant, Merchant Banker or Credit Rating Agency.

f) Clause 24(1) debars for a period of seven years any delisted securities from relisting. Seven years period is too long and serves no purpose. This should be reduced to three years . Or alternatively one year with a rider that in case of any relisting proposal, within the next 3 years, the earlier shareholders must be given the opportunity to participate in the same manner as ‘Rights issue’


Hope the above suggestions will find merit and duly incorporated in the proposed Regulations.