Delisting Regulations
Susanta K. Das
Member of Faculty
Areas to be Covered
• Definition of Delisting
• Modes of Delisting
• Process for Delisting
• Reverse Book Building Mechanism
• Cases regarding Delisting
Listing of Securities
Listing of Securities means admission of securities of an issuer to
trading privileges (dealings) on a stock exchange through a formal
agreement
Objectives
Channelize
Liquidity and Unlocking of
and mobilize
Marketability value
savings
Tax benefits
Benefits of Listing
Fund raising and exit route to investors
Ready marketability of security
Fair Price for the securities
Better corporate practice
Collateral value of securities
Ability to raise further capital
What is Delisting?
The term "delisting" of securities means removal of securities of a listed
company from a stock exchange. As a consequence of delisting, the
securities of that company would no longer be traded at that stock
exchange. ( FAQ, SEBI)
Why Delisting?
Capital Savings
Strategic Move- Shares trading below Intrinsic value
Promoters want full control over operations
Regulatory concerns
Meagre trading volume to justify the listing fees
Greater flexibility
Reduced regulatory compliance costs
Liquidation of the company
Evolution of Delisting Regulations
Circular • Weighted average traded price in the preceeding 6 months
dated April
29, 1998
• Price fixation was changed from fixed price to price discovered through
Delisting
Guidelines, Reverse Book Building (RBB)
2003
• New threshold for Delisting offer, Approval of Delisting Offer by minority
Delisting
Regulations, shareholders
2009
Delisting • Indicative Price, Counter offer by Acquirer, etc.
Regulations,
2021
Conditions for Delisting
No convertible
securities
Six months after Six months of Six months after
Three years after pertaining to the
buy-back of after preferential selling of shares
listing same class of
securities allotment by the acquirer.
securities are
outstanding
Types of Delisting
Compulsory Payment of fair value
Delisting from
Exit Opport
all exchanges unity
Delisting from
few exchanges
but remains No exit opp
Delisting listed at nation ortunity
wide stock
exchanges
Voluntary
No Reverse
Small Companie Book
s
Building
RBB- Illustration (Schedule II of DR, 2021)
Floor Price Rs. 550/-, Total no. of shares issued 1,00,00,000
Shareholding of the Acquirer- 75% ( No. of shares 75,00,000)
No. of shares to be acquired for successful delisting- 15,00,000
The discovered price- Rs. 600/- ( The price at which the Acquirer reaches the
threshold of 90%.
Reverse book building
Bid Price Number of Demand Cummulative
(Rs.) Investors (Number of Demand (No. of
shares) Shares)
550 5 2,50,000 2,50,000
565 8 4,00,000 6,50,000
575 10 2,00,000 8,50,000
585 4 4,00,000 12,50,000
595 6 1,20,000 13,70,000 Final Offer Price
600 5 1,30,000 15,00,000
605 3 2,10,000 17,10,000
610 3 1,40,000 18,50,000
615 3 1,50,000 20,00,000
620 1 5,00,000 25,00,000
Total 48 25,00,000
Reverse Book Building Process
Transparent Mechanism, IPO like
process, Difficult to manipulate
Highly convoluted process, Too
much power into the hands of
public shareholders, Apprehension
about shareholders ability to arrive
at an appropriate price, No price
ceiling, Unique to India
Voluntary Delisting Data
Financial Year Successful Unsuccessful Total
2017-18 2 0 2
2018-19 2 2 4
2019-20 5 0 5
2020-21 3 3 6
Grand Total 12 5 17
Tale of Two Delistings- Hexaware Technologies
Promoter HT Global IT Solutions Holdings held 62.08% in Hexaware
Through Public Announcement dated September 3, 2020, the Acquirer made a delisting offer to acquire 11.38 crore
shares representing 37.92% of the total issued equity share capital. Market price was around Rs.420/-.
The floor price was fixed at Rs.264.97 in accordance with regulation 8 of the Takeover Regulations (60 days VWAMP)
Reverse book building process started on September 9, 2020 and closed on September 16, 2020.
The acquirer acquired 87.28 million shares, post acquisition, the shareholding of the promoter group went up to
91.16%
The discovered price during reverse book building process was Rs.475 which was around 20X earnings for CY21.
Tale of Two Delistings- Vedanta (Based on Article dated October 26, 2020 by Mr. Rajeev Agrawal in Businessworld https://www.businessworld.in/article/Vedanta-Limited-Delisting-Failure/26-10-2020-335603/)
Floor Price Rs.87.25
Offer Price Rs.87.50
Market Price as on September 29, 2020- Rs.140
Company took a significant onetime charge of 17,386 Crs in FY 2020 which brought down the
profitability and book value of the company
On the last day of RBB, LIC stated that shares would be tendered at not less than Rs. 320/-
Why did the Delisting fail?
Results of Reverse Book Building
Promoters were trying to take advantage of slump in the share price of the
company due to covid 19
The Offer garnered around 125 crore shares instead of the 134 crore shares
required for the delisting
While a number of institutional investors had offered their stakes at around Rs
170, LIC, which held 6.37% stake in Vedanta, and some smaller investors had
offered shares at a price of Rs 320.
Vedanta –Current Market Price
Compulsory Delisting
To be initiated for violation of listing conditions mentioned in SCRR;
SE to pass an order after following the principle of natural justice;
Fair value of shares to be determined by Independent Valuers appointed by SE;
Promoters to acquire shares at fair value within 3 months.
Consequences of Compulsory Delisting
Whole Time Directors, Promoters and Company not to access the market for a
period of 10 years
Company or depositories not to give effect to transfer, corporate benefits,
rights, etc. of any of the equity shares held by the Promoters till exit
opportunity is provided
Promoters and whole time directors not to be eligible to become directors of
any listed company till exit opportunity is provided
Procedure where no exit opportunity required
Prior approval of the Board of Directors
Application to the relevant stock exchanges
Public notice in newspapers
Disclosure in the annual report post delisting
Procedure where exit opportunity required
Despatch
Approval
of Letter
of the
of Offer PA within
sharehol In- Announc
Board of within 2 2 days
ders principle ement of
Initial Directors DPA days from the
Approval through a applicatio outcome
public to within 1 from the date of
of the special n within Bidding of
announc appoint day from date of closure of
Board of resolutio 15 days to remain bidding
ement on Peer the date DPA. bidding
Directors n within from the open for within 2
the date Reviewed of receipt Bidding period
within 21 45 days date of 5 working hours
for CS to of in- to start disclosing
days of from the passing days from the
voluntary carry out principle within 7 success
the PA date of of special closure of
delisting due approval working or failure
approval resolutio RBB
diligence days of RBB
of the n process
from the process
Board of
date of
Directors
DPA
Voluntary Delisting- Process
Yes
Board Floor price Shareholders
Approval calculation approval Special Resolution and Public
shareholders approval with 67%
Shareholders do majority
not approve
Reverse
No Promoter does not accept the price book
building
Delisting
Company
Nolisted
stays
becomes
successful
Promoter accepts the price
discovered through RBB
Discovered Price
Price to be discovered through RBB
Floor Price to be determined in terms of Regulation 8 of Takeover Regulations
Acquirer to have the option of providing indicative price which is higher than
the floor price
Acquirer to have the option of revising the indicative price before the start of
bidding period
Minimum number of shares to be acquired
Post offer shareholding of the acquirer to reach 90% of the total issued
shares of that class
Acquirer bound to accept the offer if discovered price is between or
equal to floor price or indicative price;
Option to the acquirer to make counter offer if discovered price is not
acceptable to the acquirer within 2 working days of the bidding period
Counter offer not to be less than the book value
Delisting of small companies
• Paid up capital not exceeding Rs.10 crore
• Networth not exceeding Rs.25 crore
• No. of shares traded on each of the SE is less than 10% of the total no. of shares
Eligibility • No suspension during preceding 1 year for any non- compliance
• Exit price should not be less than the floor price
• Acquirer to write individually to public shareholders
• Communication to contain justification of offer price and consent would include dispensing with RBB process.
Conditions for • Public shareholders holding 90% or more give their consent in writing for delisting or to retain the shares even
Successful if the company is delisted.
Delisting
SEBI Order: AstraZeneca Pharma
• In May 2013, the Elliott Group acquired 14.10% of the equity
shareholding of AZPIL in OFS carried out by AZPAB. It also bought an
additional 1.42% shares.
• Elliott Group did not have any exposure in AZPIL prior to the OFS
• Two previous failed delisting attempts
• Post OFS, Elliott Group held 15.52% of the total public shareholding of
25%
• Conditions of Delisting- Promoters to acquire
(i) 90% of the total issued capital;
(ii) the aggregate percentage of pre-offer promoter shareholding plus
half the offer size, which ever is higher.
SEBI Order: AstraZeneca Pharma
• Under RBB Process, final offer price would be the price at which
the post offer shareholding of the promoter reaches 90%;
• Public shareholders holding a large number of shares played a
crucial role in the discovered price and a successful delisting.
• Order dated June 24, 2014, under section 11(1) and 11B of SEBI
Act, SEBI directed Exchanges to closely monitor the delisting
process
• Promoters of AZPIL to finally purchase shares under delisting
only after seeking approval of BSE and NSE
SEBI Order: AstraZeneca Pharma
Findings
• After the OFS, AZPAB and the Elliott Group were engaged in discussions
and negotiations to ensure a successful delisting on the basis of a mutually
arrived best possible price or range of prices, prior to the delisting
announcement.
• The negotiations between AZPAB and the Elliott Group constituted a
scheme to defraud the other minority shareholders
• The scheme was employed to fraudulently circumvent the price discovery
through the RBB process mandated under the Delisting Regulations.
• AZPAB and the Elliott Group had engaged in manipulative and fraudulent
trade practice in violation of the provisions of the PFUTP Regulations
SEBI Order June 5, 2020
AZPAB and the Elliott Group were censured and were directed
to refrain from indulging in such practices in the future on
account of the following:
Restraint on AZPIL by the Court from completing the delisting
process
Elliott Group had sold its shareholding in AZPIL through the open
market.
No Injury to the minority shareholders of AZPIL
• https://www.youtube.com/watch?v=LuJB9FKZYdo
• https://www.bseindia.com/xml-data/corpfiling/AttachHis/4A277F8E-
6DA9-4FB8-AD66-3F9706C3FF9E-171735.PDF
Any Questions?
