The capital market regulator Securities Exchange Board of India (SEBI) has notified new rules revamping the delisting framework in the country via SEBI (Delisting of Equity Shares) (Amendment) Regulations, 2024 notified on 25.09.2024. The new rules have paved the way for fixed price delisting for companies with frequently traded shares as an alternative to the regular reverse book-built price delisting. The floor price for any delisting offer can be determined by taking into account the ‘adjusted book value’ of the listed entity. For a fixed-price delisting, the acquirer will have to offer a minimum 15% premium to the floor price to the public shareholders. These new rules are aimed at promoting ease of doing business and enhancing the efficiency of the delisting mechanism.
Earlier the reverse book building process (RBB) was followed under which a firm planning to delist its shares from the stock exchange would make a public announcement and set a minimum floor price for the delisting offer. After this, shareholders of the company would place offers to sell securities back to the promoters or large shareholders. This process was introduced in 2003 through the SEBI (Delisting of Securities) Guidelines 2003.
SEBI in its new rules has provided an alternative to this RRB process. Fixed-price delisting is the alternative for for delisting of companies whose shares are frequently traded. Moreover, SEBI has mandated minimum a premium of 15% on the offer price for the fixed-price delisting.
Earlier, the floor price was calculated as per Regulation 8 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. It was linked to the traded price of the stock over a specified period. Under the new rules, the floor price (minimum price) in the case of Frequently Traded Shares, will be calculated as the highest value among the following:
For infrequently traded shares, the floor price will be determined as the highest value among the following criteria:
As per the new rules, the reference date for computing the floor price is the date of the public announcement for the delisting offer, or the next trading day, if the public announcement is made after market hours or on a non-trading day. For instance, if the initial public announcement is made at 1:00 p.m. on August 4, 2023 (Friday), then August 4, 2023, will be the reference date. However, if the initial public announcement is made at 4:30 p.m. on August 4, 2023 (Friday), then August 5, 2023 (Saturday) will be the reference date.
Earlier, the Delisting Regulations allowed acquirers to make a counter-offer within two working days. However, the new rules lower the thresholds for counter-offers. The acquirer can now make a counter-offer if their post-offer shareholding, along with persons acting in concert (PACs), exceeds 75%, and at least 50% of public shareholders have tendered their shares in the delisting offer. Additionally, the counter-offer price must be the higher of two values: the volume-weighted average price (VWAP) of the shares tendered during the RBB process or any indicative price that exceeds the floor price. The counter-offer mechanism does not apply to fixed-price delisting offers that do not involve a bidding or price discovery process. This amendment aims to address past inefficiencies and facilitate smoother delisting processes.
The new rules contain provisions for Investment Holding Companies (IHCs). IHCs will have an additional route for delisting, apart from the Reverse Book Building (RBB) and fixed-price methods. This route involves pursuing delisting through a scheme of arrangement sanctioned by the National Company Law Tribunal (NCLT). SEBI has emphasized regulatory approvals and adherence to the Companies Act to maintain transparency and safeguard shareholder rights.
SEBI's new delisting framework represents a significant overhaul of the regulatory landscape, balancing innovation with investor protection. By introducing fixed-price delisting alongside the traditional Reverse Book Building (RBB) method, SEBI has expanded options for companies, ensuring greater flexibility in the delisting process. Key provisions, such as the redefined floor price calculation, mandatory premium for fixed-price offers, and a streamlined counter-offer mechanism, address historical inefficiencies and aim to promote transparency and fairness. Furthermore, fixed-price delisting reduces speculative volatility and provides upfront pricing certainty for shareholders and acquirers, facilitating smoother decision-making and fund arrangements.