On 25th September 2024, Securities and Exchange Board of India (“SEBI”) issued Securities and Exchange Board of India (Delisting of Equity Shares) (Amendment) Regulations, 2024 (“Delisting Regulations 2024”) amending Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2021. The amendments introduced in Delisting Regulations 2024 are as under:
- Introduction of a fixed price delisting mechanism:
SEBI has inserted ‘Adjusted Book Value’ as an additional parameter for determination of the floor price – it is intrinsically the net-worth of the company based on the fair market value of the assets. Further, reference date for calculating the floor price has been amended to provide as under:
- Date of the initial public announcement, in case such announcement was made before the close of market hours; or
- Trading day next to the date of the initial public announcement, if such announcement was made after the close of market hours / on a non-trading day.
This amendment has been introduced to neutralise the impact of any substantial or abnormal trading activity in the company’s shares following the initial public announcement.
- Introduction of a special framework for delisting of investment holding companies (“IHCs”):
SEBI has introduced Regulation 38A within the Delisting Regulations, outlining special provisions for delisting of IHCs (which are listed for a minimum period of 3 years) where at least 75% of their fair value consists of direct investments in the equity shares of other listed companies. The delisting process can now be executed via a scheme of arrangement involving selective capital reduction.
Under this mechanism:
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- IHC shall transfer equity shares held by it in other listed companies (value as calculated on a net of pro-rata liabilities) to its public shareholders in proportion to their shareholding; and
- IHC shall make cash payment for underlying unlisted shares and any other assets (value as calculated on a net of pro-rata liabilities) to its public shareholders in proportion to their shareholding.
The fair value of IHC shall be determined pursuant to a joint report of two independent registered valuers.
Further, such delisting proposal of IHC must be approved by public shareholders, with the number of votes cast in favor being at least twice the number of votes cast against it.
- Introduction of an additional computation mechanism for determination of floor price for delisting:
- Fixed price delisting:
- As an alternative to the Reverse Book Building (“RBB”) process for companies whose shares are frequently traded, Fixed price delisting has been introduced.
- Under this route, the acquirer shall provide a fixed delisting price which shall be at least 15% higher than the floor price determined in accordance with the Delisting Regulations.
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- Further, the acquirer shall be bound to accept the equity shares tendered in the delisting offer, if the post-offer shareholding of the acquirer (along with the shares tendered by the public shareholders) reaches 90% at such fixed price.
- Counter-offer mechanism:
- The counter-offer mechanism works in case of delisting undertaken through RBB process. The earlier counter offer mechanism provided for the post offer shareholding of the acquirer along with the shares tendered by public shareholders to reach atleast 90% threshold.
- SEBI has now decided to lower the threshold required to make a counter-offer and provided that a counter-offer can be made by the acquirer only if:
- Post-offer shareholding of the acquirer (including the shares tendered by public shareholders) is not less than 75%; and
- Atleast 50% of the public shareholding has been tendered.
- Further, the counter-offer price shall be higher of the following: Volume weighted average price of the shares tendered / offered in the RBB process; and Indicative price (if offered by the acquirer).
The amendments proposed in the Delisting Regulations 2024 are welcoming. The amendments bring in much needed flexibility to the provisions and provide greater certainty with respect to the intended exit for shareholders.
For detailed discussion on this topic, please feel free to contact devadhaantu@devadhaantu.in
