SEBI Delisting - Changes Recommended

 Text of the letter written to SEBI

Further to my earlier letter dated  4^th  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.

 

SEBI OPEN LETTER—INVESTOR PROTECTION, SCORES

SMALL INVESTORS’ WELFARE ASSOCIATION

 

Email : SirenBajao@gmail.com

 Posted on 2^nd September 2020

 OPEN LETTER TO SEBI—INVESTOR PROTECTION

Dear SEBI,

Ref. Your Public Notice dated August 11, 2020 titled

“PROCESSING OF COMPLAINTS ONLY THROUGH SCORES”.

We have just celebrated JANMASTHMI.

KRISHNA was born to kill the demon of KANSA, and save the innocent citizens.

SEBI was born to kill the demon of  “fraudulent and unfair trade practices” and save the investors. In this background;

In the light of the past humongous good work done by SEBI over the last 2 decades, for mitigating the investor’s grievances, it is incredulous for us to see such a retrograde step being taken in issuing this Public Notice.  

How can you do this? 

How can some of your officers  be so self-centric?

How can you say,  you will turn a blind eye and deaf ears to a large number of complaints from investors? 

How can you forget that investor protection is the raison d'etre, the  fundamental reason why SEBI was formed?

How can you forget your own slogan “ HAR INVESOR KI TAQAT?”

How can you scorn off the investor and claim you are empowering  him.?

How can you forget that to reach out to the large number of investors you had to resort to Hindi or other regional languages?

How can you allow some self-serving bureaucrat in SEBI with a typical SARKARI BABU mindset (fortunately, even this is changing) to draft such a scheme and officially announce that they will not work under some pretext?

SAT has also often found you lacking in investors protection.  

In a country where letter writers are sitting in front of post offices to help people write personal letters at a fee, you expect an average Joe to be literate in English and to be tech savvy enough to be able to use the SCORES platform as the only mechanism to raise his voice and complain against wrongdoings by listed companies and intermediaries!!!

Talk to any investor on the street, and he will give you ten stories of how he was fooled, tricked or cheated. Or how, some of the companies play a nasty game against the interest of the public/small shareholders. If they are asked whether they have complained, the most likely reply will be “KUCH NAHI HOTA HAI complaint SE (Complaints are useless)”. All complaints are waste of efforts. Even the author was quoted in the Economic Times on 09.09.15 - “there’s no real recourse for small investors.”[1] No doubt, to say nothing happens, is not correct. But that is the public perception. As it is said “Justice should not only be done, but it should also appear to have been done”

SEBI has done a great work for investor protection, but I am aghast at the SEBI Notification dated 11 August 2020. This essentially says, if you have a complaint, fill up the e-form and let the automated system work. If you are not a computer literate, or do not know English (which is not the mother tongue for most Indians) you practically cannot approach SEBI. SEBI is officially announcing that it would turn deaf ears to all the investor’s cries not channelized through SCORES.

 

It does not matter that, as per SEBI’s own admission in the same Public Notice, a large number of complaints are received outside the SCORES platform:

 “SEBI has been receiving large number of complaints on its generic e-mail ID sebi@sebi.gov.in. Investors from time to time also send their grievances to official IDs of SEBI officers.”

 My personal experience with SCORES has not been very effective either. It takes several attempts to be able to register a complaint successfully. It hardly ever so happens that a complaint gets registered in the first attempt. If the company, out of fear and respect for SEBI, resolves the complaint - the investor gets relief, otherwise the complaint gets lost forever. For example, the author’s complaint on SCORES about the IPO of Bharat Road was never resolved. In the IPO of Bharat Road Network, there was heavy manipulation of subscriptions. The IPO was undersubscribed, but the trading had been manipulated to show oversubscription. Rs. 600 Crs. was collected from the public @ Rs. 205 per share which is now (as of 1^st  September 2020) languishing at around Rs. 35. Investors lost almost 90% of their wealth i.e. about Rs. 500 Crs. Had SEBI acted on the author’s complaint and alerts, it could have stopped the IPO and the consequent loss of public money could have been avoided. My complaint to SEBI was as follows:

 

The recent IPO of Bharat Road Network Ltd. seems to be highly manipulated. The issue price was very high. Subscription Figures given before and at the time of closing were wrong.

The allotment of shares took place on 14.09.17 but BASIS OF ALLOTMENT was not published. .Even after repeated mails, the company refused to disclose the BASIS OF ALLOTMENT. The company secretary first wanted to know, under which regulations I was asking for it. I wrote back that it is the normal practice and why should the company shy away from public scrutiny. 

The reason for company's reluctance is now very clear. Against the subscription figure of 1.62x of NII OR HNI as given to the public actually number is just 1.08x. One single form is for 52% of the Equity. 

SEBI's emphasis on SCORES is appreciated because it allows tracking and tracing of complaints. But this measure to preclude the common man unless given procedures are followed by the book cannot be accepted. Think of the rural investor, the poor person who was conned, rather than only your SOPs and rules. No, we are not suggesting that the SCORES platform should be ignored, all we are saying is to find out ways and means of operating it without diverting from the real purpose, i.e. the protection of one and all, without discrimination. It is like throwing out the baby with the bathwater.

THE WAY FORWARD

1.      Please withdraw this Public Notice immediately. In order to aid justice, even the Apex Court of the country takes cognizance of a matter, even if it receives a post card thereon with illegible handwriting.

2.      Make a full-fledged “Investors Representation Department” (IRD). This department should take-up and follow-up all the complaints received from the investors, received in whatever format, be it a simple postcard. IRD should act as an advocate for the investors in dealing with the complaints. Many investors are not able to write a proper complaint letter.

3.      If SEBI is not willing to process the complaints, it can outsource this to some a small BPO firm with an instruction that all emails forwarded to them which are in nature of grievance should be uploaded on SCORES website with whatever data available. That would be an investor-friendly measure rather than simply dismissing the complaints due to non-adherence with format.

4.      IRD should reach out to investors and set-up its desks at several places, easily accessible to the investors. The officers manning such desks should be approachable to the common man, who must not have inhibitions based on their appearance.

5.      You must acknowledge complaints received and inform about the action taken.

6.      You must pass an appealable order for every complaint received. Or at least when demanded by the complainant.

7.      You must appreciate that not passing an appealable order is obstruction of justice. Investors cannot go to SAT until there is an appealable order.

8.      The IRD should arrange for legal help out of the funds lying and being collected by SEBI in the name of investor protection.

9.      Another obstruction to justice for a small investor is the cost of litigation; the hefty fee charged by lawyers. The appellant approaching SAT must be given an option whether he wants to have a personal hearing or not. At the option of the Appellant, the ritual of hearings may be done away with. Unlike other civil and criminal cases, personal evidence is not material. It is not required to observe the body language and character to determine if the person is speaking the truth or not. For all that needs to be said, documentary evidence is enough. The series of Appeal, Reply and Rejoinder gives sufficient opportunity to everyone to put their points across. Therefore, it is urged that at the option of the appellant, the personal hearing is waived. I think this will be much in favour of the small investors who cannot afford highly paid lawyers. SEBI and SAT will have to pass a well-reasoned order giving their specific view on every point raised. This will also speed up disposal of the cases before courts and help in de-clogging the justice delivery system.  

Hope that the investors’ prayers are looked into by you, and that you would withdraw the Public Notice on SCORES immediately. Request you to sincerely consider all the other suggestions that have been raised above.

[1]https://economictimes.indiatimes.com/markets/stocks/news/some-of-the-most-influential-dalal-street-investors-youve-never-heard-about/articleshow/48337912.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

 

DAY AND DATE

DAY AND DATE UNDER SEBI REGULATIONS

It is interesting to note  that while Bakri Id is a holiday in 28 states/cities, Janmashtami is a holiday only in 17 states and that too over 2 different dates. Ganesh Chaturthi is a huge celebration in Maharastra but it is a holiday only in 7 cities.

SAST 2011 regulation 2(1)(zf) defines a working day as:

 “working day” means any working day of the Board.

India[1]  is a huge country with a diverse culture. ‘Unity in diversity’ is the identity of the country. A holiday in one state may not be holiday in another. A list of holidays as per RBI,[1] for the month of August 2020 has been summarized below:

Holiday Description in the Month of August 2020 as per Reserve bank Of India Website : https://www.rbi.org.in/Scripts/HolidayMatrixDisplay.aspx as visited on 19 August 2020 at 06.00 Hrs.	Date	Number of States/cities where it is a holiday
Bakri ID (Id-Ul-Zuha)/COVID-19 containment measure	1	28
Raksha Bandhan	3	5
Sri Krishna Janmastami	11	4
Janmashtami	12	13
Patriot’s Day	13	1
Independence Day/COVID-19 containment measure	15	31
Tithi of Srimanta Sankardeva	20	1
Teej (Haritalika)	21	1
Ganesh Chaturthi/Samvatsari (Chaturthi Paksha)/Vinayakar Chathurthi	22	7
Karma Puja/Ashoora/COVID-19 containment measure	29	4
Indrajatra/Thiruvonam	31	3

 With such diversity it is appropriate to define a “Working Day” to ensure uniformity across the nation. As per the regulation, a working day has been defined as the days on which SEBI is working irrespective of whether such day is a working day in the city where the company/entity is situated. The same is also applicable for international players. An overseas acquirer cannot plead holidays in his country while counting the number of days.   

Owing to India’s quasi-federal structure, (each state has its own list of holidays which differs from state to state and from that of the Central Government’s) determination of “working days” becomes highly controversial at times. Additionally, there are certain days on which the stock exchanges are open but the banks are closed as per the holidays provided under the Negotiable Instruments Act, 1881.

This definition is quite short and simple and effectively lays to rest any kind of controversy w.r.t. a “working day.”

DATE

In the case of Punrasar Holding (P) Ltd. V SEBI (SAT Appeal no. 205 of 2009) the case was appointment of acquirer as director of the same day on which they acquired the shares. The SPA was signed and the acquirers were appointed directors on the same day April 19, 2006 in violation of the SAST Regulation 22(7). The petitioner contended that the acquirers were appointed directors on the same date but before the signing of the share Purchase agreement, hence no violation took place. SAT ruled that the date will commence from the midnight and the acquirers cannot be appointed as directors on the same day, regardless of the fact the appointment may have taken place prior to the signing of the SPA.

---

[1] https://www.rbi.org.in/Scripts/HolidayMatrixDisplay.aspx as visited on 19 August 2020 at 06.00 Hrs.

Under pricing of ABB Power Products and Systems India Limited –Open Offer

SMALL INVESTORS’ WELFARE ASSOCIATION

Regn No. F-72744 (M)

With a legacy of 25 years of investor protection services

Email : SirenBajao@gmail.com

 

TEXT OF LETTER WRITTEN TO SEBI

The above referred Open offer is full of irregularities and CHALAKI designed to short-change the small shareholders. You must have received many complaints against the offer. We have been approached by several complainants with a request to give a proper representation to SEBI. Today, we wish to highlight only some glaring issues and irregularities. Shall revert to you once again, sometime later, with more detailed representation.  

1.      The primary transaction on a global level was executed on 17^th  Dec.2018, Accordingly as per regulation 13(2)(e)  the PA was due within 4 days i.e. 21^st Dec.2018. Public Announcement (PA) has been actually  made only on 30^th  March, 2020

2.      The initial Share Purchase Agreement (SPA) was done on 17^th  Dec.2018, and was duly notified to SEC (Securities Exchange Commission) immediately. But it was not notified to the Indian Stock exchanges or SEBI at the same time. Perhaps in the minds of the acquirer, SEC and SEBI is not at par. They must be asked why SEBI was not informed at the same time as SEC?

3.      On an arbitrary date; 24^th   Mar. 2020 Valuation is done for the purpose of Open Offer. This is the date after the Stock market had hit lower circuit and valuation world over were at 6 years low because of Global Corona Pandemic.

4.      The transaction has not been disclosed in a transparent manner. Price that has been attributed to the Indian Power Grid unit (ABB Power Product) has not been disclosed.

5.      The target company does not qualify  for the test of “frequency” as it was not in existence on the date of   transaction for takeover. The global level share purchase agreement (SPA) between ABB and Hitachi was executed on 17^th  Dec.2018, ABB Power Products Limited was formed on 19^th February, 2019. NCALT  approved the  scheme of demerger on 27.11.2019 and the demerger record date was fixed on 23.12.2019^[1].

6.      The frequency of trading in shares should be tested for then existing pre-demerger company. It cannot be done for any non-existing company. The  company then in existence was ABB India Limited and was frequently traded as per the definition given in these Regulations.

7.      The first basic price should be determined by a simple formula; ABB India’s  Pre-demerger price minus post demerger price will give the price for the demerged unit. Accordingly the value will be approx. 1400 Price of ABB.

There are many more and serious points which will be notified to you later.

 

List of dates  or activity schedule:

Share Purchase Agreement	17.12.2018
Hitachi Limited had made an immediate News Release in Tokyo, Japan	17.12.2018
ABB Ltd. made necessary disclosures before the Securities Exchange Commission	17.12.2018
ABB Power Products and Systems India Limited was incorporated	19.02.2019
NCLT sanctioned the scheme of demerger	27.11.2019
Record date for Spin off	23/12/2019
Allotment of shares to the shareholders of ABB India Limited	24.12.2019
The intimation for the apportionment of Cost of acquisition for the purpose of determining post demerger cost of acquisition as per income tax act	07.02.2020
Competition Commission South Africa’s  approval to the said transaction	27.03.2020
Public Announcement	30.03.2020
Valuation date	23/03/2020
Valuation report date	24/03/2020
Competition Commission of India’s approval to the said transaction	07.04.2020
European Commission’s approval of acquisition	29.05.2020
Detailed Public Statement	01.06.2020
Draft Letter of Offer	09.06.2020
BSE Press Release	01.07.2020
Consummation of transaction	01.07.2020
Corrigendum in Financial Express	03.07.2020