SEBI Revises Rules, Introduces Fixed Price Mechanism for Voluntary Delisting

The Securities and Exchange Board of India, or SEBI, has unveiled major changes to delisting rules that would allow promoters of companies to take their companies private with greater ease through a new fixed price model. SEBI has also set down new guidelines for delisting investment holding companies, or holdcos.

A new mechanism allows promoters to repurchase all public shares at a fixed price with a minimum 15% premium over the "fair price." Besides the RBB process, in addition, promoters can repurchase all public shares through a new mechanism at a fixed price with a minimum 15% premium over the "fair price."

The updated rules, which will be in place from September 25 onwards, include that "if an acquirer proposes delisting through the fixed price method, the offer price must be at least 15% higher than the floor price calculated under regulation 19A."

The fixed price process eligibility is only granted when the company shares are usually traded on the stock exchange.

"This scheme opens up the possibility for promoters to delist at a pre-set price paying a 15% premium on the floor. However, they still have an option of choosing RBB on shareholders' wish. Often RBB would be sought after as it provides for a form of a counter-offer," said Gautam Gandotra, partner at Cyril Amarchand Mangaldas.

Under the RBB and fixed price methods, SEBI also has prescribed floor price guidelines for equity shares, which are slated to be delisted. The floor price cannot be lower than the highest paid in the acquisitions made during the last 26 weeks preceding the reference date or any other criteria including volume-weighted average price and adjusted book value.

The rigid nature of the RBB process normally results in a delisting price that the promoters cannot achieve, and hence the offer is workable.

While these amendments became effective from September 25, acquirers may submit their delisting proposals under the previous rules for the next two months.

To facilitate this process, SEBI has even diluted the requirement of getting a successful counter-offer under RBB to 75% public shareholder approval from the earlier 90%. Once the promoters or acquirers get at least 90% ownership post-offer, a delisting is obviously successful under the RBB process.

The updated rule outlines the procedure for delisting under the RBB process. According to the new rule, if the acquirer holds at least 75% of shares, but no less than 50% of public shares are tendered, then the acquirer may make a counter-offer to public shareholders for delisting.

For delisting of holdcos, SEBI specified that to be eligible, at least 75% of the value of the holdco must derive from direct equity investments in other listed companies. This shall be ascertained by joint valuation by two independent valuers. Post delisting, holdcos cannot be allowed to relist for three years or more.

SEBI says this new process should save an estimated ₹200 crore in the next five years due to reduced operating costs. The same thing also reduces fintech integration cost and supports interoperability without additional costs incurred as the UDiFF implementation shall be done in a phased manner.