Dear Sir,
We thank you issuing the discussion paper on Delisting
Review. We find that some of our suggestions have found their way in the paper
but many others have been ignored. While our suggestions on Indicative Price, Lien
marking, timeline for applying for Stock Exchange approval have been looked
into, other suggestions on discovered price, Counter Offer, Delisting-cum-Open
offer, Early Bird Incentive, Definition of DVR have been ignored. We
have given our comments in the desired format and have reiterated our suggestions at the end of the
letter. Hope you will find merit in our suggestions and they will soon be .
Thanking you.
Yours truly
For SMALL INVESTORS’ WELFARE ASSOCIATION
CA Arun Goenka
1. Public comments are therefore invited on the aforesaid
proposals in the following format:
Name of entity/ person/ intermediary: CA Arun Goenka
Name of organization (if applicable): SMALL
INVESTORS’ WELFARE ASSOCIATION
Regn
No. F-72744 (M)
Contact
details: Address, Mobile No. etc. 703,
Meadows, Sahar Plaza Complex, AndheriKurla Road,J.B. Nagar, Andheri ( E) ,
Mumbai 400 059
Email
: SirenBajao@gmail.com Tel : +91-22-4215 1349 Mobile No. 93230 91348
|
Sr. No. |
Proposals Page No.
Para No. |
Proposed/ suggested
changes |
Rationale |
|
1 |
1.4.ii |
The IPA
shall be made by the acquirer / promoter |
The words through
the manager, have been suggested to be deleted. No need to first appoint a Merchant Banker to issue “Initial
Public announcement / IPA”. This can be “Self Declaration” in the prescribed
form. The basic objective that such “price sensitive information, and should be disseminated in
the public domain in a real time manner” is defeated and crucial time is lost
in finding and appointing a Merchant Banker. May be quotations will be
invited and discussion take place with more than one Merchant Banker leading
to the chances of leakage of information. In the case of Takeover the IPA may need a specialist an
expert Merchant Banker since the matter is more complicated and often
involves information required for a third party which may not be easily
available. In the case of delisting the whole information and management is
in the control of the promoter, IPA can be issued immediately. The format of IPA can be made simple and self declaration
type. On the lines
of DPS in the Takeover code, DPS may be issued within 5 days of IPA by a
Merchant Banker. |
|
2 |
3.4 |
This can be
dropped |
This will
cast an unnecessary obligation on the company. It serves no useful purpose. Delisting
offer should be viewed only as a short-term price advantage opportunity for
investors. If the
company has a bright future, the delisting cannot be in the long-term
interest of the investors. On the other hand, if the company does not have a
bright future ahead, no Promoter shall go for delisting. Save the
Committee of Independent Directors from any kind of false/controversial
recommendation. Let the investors decide for themselves. |
|
3 |
5.2 |
Promoter(s)
/ Acquirer(s) may be allowed to specify an indicative price which shall not
be less than 25% over the floor
price calculated in terms of Regulation 8 of Takeover Regulations. |
It is meaningless to incorporate “Indicative Price” if it is
going to be the same as floor price. It will be unnecessary repetition and
confusing (Vedanta delisting offer Floor Price 87.25 Indicative price 87.50) There has to
be an objective for giving Indicative Price. It should be made optional
not obligatory. The objective of Indicative Price should be
to encourage the investors to participate in the delisting offer. If an offerer is very keen on the success of
delisting offer, he can indicate that by giving a higher offer price which
should not be less than 25% of the floor price. The text of my original
suggestion to SEBI Chairman sent on 16th September 2020 is reproduced below: 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. |
|
4 |
6.5 |
Promoter(s)
/ acquirer(s) shall open an escrow a/c with in seven working days of the
shareholder’s approval and deposit therein an amount equivalent to 25% of the
total consideration, calculated on the basis of the floor price / |
The change
suggested is to remove the word indicative price and make it obligatory to
deposit only 25% of floor price. This is suggested to encourage the Offerer
to offer liberal indicative price without much obligation and funds
constraint right from the beginning. There is a considerable time gap between the time of opening the Escrow
account and the actual fructification of the delisting offer. This may add a
substantial additional initial financial constraint for the promoter in
declaring a higher Indicative Price, and will discourage him from announcing
higher indicative price. |
|
5 |
13.6.i |
Prior to
making the |
In line with
our suggestion that IPA can be in the self-declaratory mode, IPA should be
deleted. |
|
|
13.6.ii |
Due –
diligence shall be performed by peer reviewed practicing Company Secretary or
Chartered Accountant, in place of MB, not relating to MB / Acquirer /
Promoter / their Associates; |
The word Chartered Accountant (CA) has been suggested to be
added in view of the fact that CAs are more suitable for the job because of
the education, training and regular involvement with the financial and
corporate legal affairs of companies |
Apart from the above there are several other suggestions
which were given to SEBI from time to time. These suggestions needs to be
looked into seriously to achieve the stated objective.
Extracts from my email dated 16th September 2020
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.
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.
2.
COUNTER OFFER
The Counter offer should be allowed
to be given even when shares offered have not reached 90% threshold.
3.
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.
4.
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 .
5.
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
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