SEBI Delisting Regulation- genesis of Counter Offer provision and possibility of use in VEDANTA ·

Persons attached to the SHARE BAZAR and taking special interest in special situations are all keenly watching the developments in the biggest delisting offer in the country –VEDANTA.  The total payout could be anywhere from 15,000 to 25,000 Crore.

·       As of now we have been only focusing on the counter offer possibility by Mr. Anil Agarwal. Regulation 16 (1A) was inserted w.e.f. 14.11.2018 in SEBI (Delisting of Equity Shares) Regulations, 2009, facilitating promoter to give counter offer. But such counter offer cannot be at a price less than the book value.

·       The fact that he took heavy impairment in the books of the company, convinced people like me that it is all pointing too one direction- eligibility to make a counter offer at a price more favourable to the promoters. People can accuse Anil of not being fair to minority shareholders or anything, but will agree that he is a very smart businessman, a fast thinker and a forward planner. When Anil found the Goalpost  ( book value) to be too far, he shifted the Goalpost by reducing the book value.

·       The seed for this regulation 16(1A) was sown by me in 2014. In response to the Discussion Paper on 'Review of Delisting Regulations', I had inter-alia given the suggestion that failure of a delisting offer  is a waste of a lot of effort and time and a loss to all the stakeholders. The promoters must be given a second chance to make the efforts fruitful and rewarding for all. 

·       The copy of the letter dated 30 May 2014 addressed to Mr. Amit Tandon, DGM at the relevant time, is reproduced.

 Date June 24, 2020

AG/T2/delist.R.S.

30 May 2014

Mr. Amit Tandon
Deputy General Manager
Corporation Finance Department
Securities and Exchange Board of India
SEBI Bhavan
Plot No. C4-A, "G" Block
Bandra Kurla Complex
Bandra (East),
Mumbai - 400 051
Ph: +912226449373/ +912226449334

Dear Sir,

Sub.  'Review of Delisting Regulations'

Being a diehard investor protection activist, I could not resist myself from sending in my views on delisting review, although I was quite disappointed with the treatment meted out by SEBI to active investors like me.

As you must be aware, I am very active in protection of investors’ and have been interacting with SEBI on a very regular basis for about 2 decades. In the last review of Takeover code I had made very detailed note and submitted to SEBI but that there was not even an acknowledgement, leave alone appreciation. All the appreciations were reserved for the Big Corporates & Law firms although SEBI is supposed to take care of Investors interest and accordingly investors’ views and participation  should have been appreciated.

The views expressed in the discussion papers are quite far from the actual investors’ view who really participate in such offers. Although the avowed objective is to safeguard the investors interest, but investors’ perspective is  missing   in the discussion paper. Please note the following:

1.      The current delisting process is designed to discourage participation by the investors. Once an investor tenders his shares, he is stuck for about a month in case the Delisting offer fails. He can do nothing till his shares are refunded/returned. He will have to simply see his shares hitting lower circuits. After having suffered such fate in a couple of issue, I decided that I will not jump into the pool. I will participate from the side-line only. I do not tender my share in the bidding process but keep a very close watch, If the issue is not successful, I immediately sell the shares the next day in the market and in case it is successful, the market prices catches up with the delisting price. But in the process the very chances of the delisting being successful gets reduced.

2.      There is no reason why the promoters should be allowed so much time to announce their acceptance or rejection of the discovered price and accordingly accept or refund the shares tendered.

3.      The reasons for failure of a delisting offer are:

a.       Not sufficient number of shares received

b.      The price discovered is very high and not acceptable to the acquirer

c.       The price at which required no. of shares can be acquired is still higher than the discovered price. ( Alfa Laval case)

The acquirer and the investors  must be given a second chance in case of above failures.

·       In situation (a) Since the discovered price will always invariably be higher than the market price, The acquirer can announce that the he is willing to accept the discovered price provided the investors participate and the required no. of shares is reached,  else he will abandon the delisting exercise. 

·       In situation (b) & (c) the Acquirer may announce the best price that he can offer and ask the investors to revise their bids.

The acquirer availing of such second chance cannot come with another delisting offer for next one year.

4.      In case of failure of delisting because on the offer failing to  get the minimum desired no. of shares, there is no reason why the  shares cannot be refunded immediately and investors should suffer.

5.      In case of successful delisting the exit offer take too long to come.

6.      Speculation and speculators are not dirty words, not in share markets. Please do not kill them, only regulate them.

Hope you will be considering the Investors’ perspective as well while considering the changes.

Thanking you,

Your truly,

Arun Goenka

Name : CA. Arun Goenka
Investor:
Sr.No.	Pertains to serial number -- of discussion paper	Proposed / suggested changes	Rationale
1.	4.1.i	No change required	The point is self contradictory
2	4.1.ii	Not a valid point	If new investors invest close to delisting process, the pay significant premium to the past market price and in fact provide a much easy and certain exit to many long term investors
3	4.1.iii	Change of bid should not be allowed	The manipulators game can be foiled if they are not allowed to change or withdraw the bid. The bidding process is quite transparent and investors can take their decision