DELISTING PROCESS CONTINUES TO REMAIN A PAIN
-R.S. Loona, Senior Partner, Dhaval Vussonji & Associates
In March this year, SEBI amended certain provisions of the delisting regulations with a view to simplify and expedite the whole process of voluntary delisting of securities but  while doing so it has unwittingly tinkered with some vital provisions which have actually become a new headache for listed entities seeking delisting.

Provision for determination of floor price is the most important provision in the delisting regulations. Under the un-amended regulations, the floor price was required to be determined with reference to the trading on stock exchange during the period of 26 weeks or 2 weeks preceding the date on which the stock exchange was notified of the board meeting in which the delisting proposal was considered. This provision has been amended now to provide that the floor price shall be determined in accordance with SEBI formula prescribed under SEBI takeover regulations. Devil lies in this cross reference as SEBI pricing formula based on trading under the takeover regulations is linked to public announcement which in case of open offer is the first act on the part of acquirer to declare his intention to acquire shares or control of the target company. As against that, the first act to disclose the promoters’ intention for proposed voluntary delisting offer is the company’s board meeting at which such proposal is considered and that is why trading prior to the date of board meeting was considered for determining floor price under the un-amended regulations. Public announcement in the case of voluntary delisting is required to be made much later i.e. after receipt of in-principle approval from the stock exchange and hence, if determination of offer price for delisting offer is linked to the public announcement the same will get artificially inflated during the period between the company’s board meeting and the public announcement.

It is pertinent to note that any proposal for voluntary delisting is a price sensitive information which immediately affects the trading volumes in the company’s scrip. Hence, if proposal for delisting is notified to the stock exchange after board meeting and determination of floor price is linked to the market price during 60 trading days prior to the public announcement, then the scrip, in all probability will experience price manipulation during this interregnum period between the board meeting and the public announcement. Further, if the floor price is not linked to the company’s board meeting then the promoter would find it very difficult to assess his financial capability to acquire the shares under the delisting offer as the market price of shares may substantially go up during the period between the board meeting and the public announcement. Against this back drop, SEBI is required to take immediate action to link floor price to the trading before board meeting instead of public announcement.

Related with the public announcement there is another recent amendment which needs prompt attention of the market regulator. Delisting regulations provide that the public announcement shall specify a date, being a day not later than 30 working days from the date of the public announcement, which shall be the “specified date” for determining the names of shareholders to whom the letter of offer shall be sent. The letter of offer as per the un-amended regulations was required to be despatched to the public shareholders within 45 days from the date of the public announcement i.e. after specified date.

Pursuant to recent amendments the said period of 45 days has been reduced to 2 working days but no corresponding change with regard to “specified date” has been made. Obviously, letter of offer cannot be issued before specified date and if the specified date is 30 days from the public announcement, letter of offer cannot be issued within 2 days from the public announcement. This contradiction in the newly amended provisions also needs to be rectified immediately.

The author is Managing Partner of Alliance Corporate Lawyers, Mumbai and former ED of Sebi. rs.loona@alliancelaw.org