Text of the letter written to SEBI
Further to my earlier letter dated 4th July 2020 given in the the trail mail, I am eagerly waiting for some amendments and clarifications on the matter of Delisting as suggested. When the delisting fails, the investors and promoters alike everyone loses. SEBI as a regulator has to ensure fair play and higher success ratio of any such exercise. Keeping this in mind I had given my suggestions and I am clarifying and adding some small suggestions so that all can be incorporated in one go.
1. INDICATIVE PRICE
Although the term “indicative price” is nowhere mentioned in the Regulations, but in practice, it is very commonly used. The use of the term “indicative price” should not be allowed. This is very misleading, and untrue as well. This is also against the spirit of the regulation which wants to provide a free and transparent price discovery mechanism, The “indicative price” unfairly influences the mind of the investor who cannot now bid freely without being guided by the indicative price. Indicative price is supposed to indicate the price the Promoters / acquirers are willing to give, but in reality the final Exit price is always substantially higher, on an average by 30% to more than 100%.
The use of indicate price should be permitted only in the situation where the promoters want to encourage public participation in the offer giving incentive by means of offering a higher price. In such a situation the “Indicative price” should not be less than 150% of the “floor price”. In the case of Alfa Laval the indicative price announced was higher by more than 40%. The Floor Price was Rs. 2,045/-whereas the Indicative Offer Price was Rs. 2,850/- Such indicative price can be permitted, but not Rs.87.50 announced by the promoters of Vedanta, since the floor price is almost the same.
2. DISCOVERED PRICE
.The discovered price has not been defined in the regulations. please define it as a price at which maximum number of shares have been offered. Not the price at which the threshold of 90% is reached.
3. COUNTER OFFER
The Counter offer should be allowed to be given even when shares offered have not reached 90% threshold.
4. DELISTING-CUM-OPEN OFFER
Promoters may be given a Delisting-cum-Open offer opportunity. For example in the case of Vedanta, promoter's holding is 50% they have to acquire minimum 40% from the market, assuming they fail to get 40% and the offer fails. In such a situation the promoter may be allowed a-la counter offer style, that he is willing to accept such % of shares as will not violate the MPS norms. Say in this case 25% at a price to be announced by him. This will work in favour of all.
5. EARLY BIRD INCENTIVE
An early bird incentive may be allowed to be offered for better management of delisting. Rather than everyone waiting till the last, investors who tender their shares early may be given incentive, say 0.5% for each day. Since the offer is to be kept open for 5 days.{Reg.13 (2)}, let it be, for example 2.5% more to the person tendering on day 1, day2, 2%.......so on .
6. NEW MECHANISM OF PARTICIPATION
The biggest loss to the investors occur when their shares are stuck in a failed offer. The shares start hitting lower circuits but the shareholders cannot do anything since their shares lying in escrow, cannot be sold. To avoid such losses, investors do not participate in the process. To encourage participation, some innovative mode of participation should be thought of.
One suggestion is; Can we have a system of "FREEZE MARKING" in the DP rather than tendering for participation. As soon as the offer fails, freeze can be lifted.
7. APPLICATION FOR IN-PRINCIPLE APPROVAL
The time for all the action points are specified in the delisting process. However, for obtaining in-principle approval of the stock exchanges, no specific time limit has been given. The fact that the delisting exercise has to be completed within a maximum period of one year, determines the last date by which application for in-principle application should be submitted. While HEXAWARE did it vety fast, INEOS took one year. If considered fit, a time limit of 9 months from the date of approval by the Shareholders, may be specified for making an application for in-principle approval . In any case the company should inform the stock exchange when they make an application for in-principle approval.
8. SUGGESTED CHANGE IN REGULATION 3(1)-- DVR
[Explanation: For the purposes of these regulations, the term “shares” shall include equity shares having superior voting rights.]
The above explanation seems to be a drafting error and needs to be changed. Because of the above, delisting of shares with inferior voting rights are not covered . This seems to be an oversight.
The concept of shares with Differential Voting Rights or (DVRs) was introduced by way of amendment of Section 86 in the Companies Act 1956 which came into effect from 13.12.2000. Such voting rights may be superior or inferior.
In the case of Jagatjit Industries, DVR shares with superior voting rights were issued. These DVR shares carried no rights to dividend, but 20 votes per share.
In 2008, Tata Motors had issued DVR shares with inferior voting rights. Tata Motor s DVR shares carried one vote per 10 DVR shares but a 5 per cent higher dividend. Shares with inferior voting rights have not been included in the definition of ‘Equity Share’ the implication is that shares like TATA Motors DVRs cannot be delisted or delisted without following the delisting regulation
In case you need any clarification on any of the concepts given above, kindly feel free to write to me or call me on my mobile no.
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