SEBI consultation paper on Delisting Issued on: March 16, 2020- our suggestions

Suggestions to  SEBI sent  on 06.06.20 on the proposed amendment to Delisting Regulations in response to SEBI's

 

Consultation Paper on “Amendment to Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009 for Schemes of Arrangement”

We have gone through the suggestions and have following comments to offer:

1.     1.   This seems to be the right step in allowing liberties to corporates in arranging their scheme of things at the same time protecting the interest of investors.

2.       2. The corporates were in any case able to delist their subsidiary companies without following the process of delisting by simply following the process of merger. Example—Ranbaxy was merged into Sun Pharma without there being any delisting offer. The only advantage that this proposed change will provide the holding company is that the subsidiary will be able to maintain its distinct corporate entity. This could be useful in case of various  licenses and registrations etc.

3.       3. A vice-versa delisting process should also be allowed; i.e. the holding company getting delisted and  becoming the unlisted  WOS of the present day subsidiary. Ultimately the Holding and subsidiary swapping their roles. There could be cases where there are cross holdings and the subsidiary is also holding substantial percentage of shares in the holding company. In any case they can still get delisted without giving a delisting offer by dopting the route of merger.  The only advantage that the change in the Delisting guidelines will provide is, the companies will be able to maintain their separate corporate identities.

4. Majority of the delisting happen at a substantial premium; almost about 50% higher, to the floor price determined as per the formula given in the Delisting Regulations. We suggest that this must be factored in the swap ratio formula. In the example given in the paper, if the value of shares of “S” and “P” both is same, the swap ratio should not be 1:1 but it should be 1.5 : 1 in favour of the shareholders of the companies getting delisted.  This will take care of the delisting premium that the shareholders may lose.