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November 28, 2006
Changes
to Delisting Guidelines proposed
The
Securities and Exchange Board of India (“SEBI”) has on
November 23, 2006 issued a concept paper on the proposed SEBI (Delisting
of Securities) Regulations, 2006 (“Regulations”) with a view
to give a statutory force to the extant SEBI (Delisting of
Securities) Guidelines, 2003 (“Guidelines”) and to amend
certain provisions relating to computation of offer price, minimum
public float, time lines etc.
Background
The
Guidelines, which are currently in force, lay down the norms and
procedures for delisting of securities of companies listed on the
recognized stock exchanges. However, because of the fact that the
existing framework is in the form of guidelines which do not have
statutory force, SEBI has proposed to formalize the framework in
the form of regulations, which have the sanction of the
legislature and consequently are more effective for enforcement.
Additionally,
there are some aspects of the Guidelines that are sought to be
amended in the proposed Regulations in order to eliminate any
practical difficulties from enforcing the regulations as well as
to iron out any inconsistencies with other SEBI regulations.
Key
Changes
The
key changes proposed to be made in the Regulations are set out
below:
Existing
framework
-
Offer
price to be discovered through book building process in which,
price is to be determined at the rate at which maximum number
of shares are tendered and in case of infrequently traded
shares in terms of Regulation 20 of SEBI Takeover Code.
The book building process shall have a floor price
which will be the average of 26 weeks traded price quoted on
stock exchange where shares of the company are most frequently
traded preceding 26 week from the date of public announcement
and without any ceiling on the maximum price.
-
Success
of exit offer is linked to the reduction of the public
shareholding below the continuous listing requirement
threshold, i.e. 25% or 10%, as applicable.
-
Only
the public shareholders holding shares in
dematerialized/electronic mode can participate in the exit
offer.
-
Exit
offer to be open for a period of 6 months after the closure
and acceptance of the offer.
Proposed
changes
-
Offer
price to be higher of (a) floor price plus a premium of 25%
and the floor price would be determined in terms of Regulation
20 of SEBI Takeover Code, and (b) fair value determined by an
accredited rating agency plus a premium of 25%.
The reference date for calculating the floor price
would be the date on which the stock exchanges are notified of
the Board meeting in which the delisting proposal was
considered.
-
Success
of exit offer linked to the promoters shareholding (together
with persons acting in concert) exceeding 90% or 96% of the
outstanding shares where the applicable minimum public float
(required under the listing agreement) is 25% or 10%
respectively.
-
Public
shareholders holding securities in dematerialized form or in
physical form can participate in the exit offer.
-
Exit
offer to remain open for a period of 20 days during which the
public shareholders may tender their securities without any
follow on period to keep the exit offer open to the
shareholders who have not tendered their shares during the
offer period.
Conclusion.
Most
of the changes proposed in the Regulations try to address the
lacunae in the Guidelines not just from investor protection point
of view but also seek to streamline the exit offer process and
lend some amount of certainty therein.
Many existing provisions under the SEBI Takeover Code
relating to computation of fair price, procedures and time lines
for the consummation of the exit offer are now brought in to the
Regulations. By
virtue of enacting the Regulations the provisions there under have
a binding and statutory force, thereby facilitating ease in the
prosecution process in case of default as compared to Guidelines.
As the Regulations are in the form of a concept paper, SEBI
is currently inviting comments from the public and hence the final
form of the Regulations remains to be seen.
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You
can direct your queries or comments to the authors |
Source:
SEBI
website www.sebi.gov.in
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