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

Changes in SEBI Takeover Regulation w.e.f. June 16, 2020

SMALL INVESTORS’ WELFARE ASSOCIATION

Email : SirenBajao@gmail.com

Amendment in the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, w.e.f. June 16, 2020.

I. In regulation 3, in sub-regulation (2), the following new proviso shall be inserted before the

existing provisos, namely –

“Provided that the acquisition beyond five per cent but upto ten per cent of the voting

rights in the target company shall be permitted for the financial year 2020-21 only in

respect of acquisition by a promoter pursuant to preferential issue of equity shares by

the target company.”

II. In regulation 6, in sub-regulation (1), the following shall be inserted after the first proviso,

namely,-

“The relaxation from the first proviso is granted till March 31, 2021.”

This is a welcome change in the difficult times of COVID-19. Promoters will get the chance to enhance their holding in the company at a relatively low prices and the company will get additional funds. The increased financial commitment of the promoter will boost the confidence of the minority shareholders of the company.

Special relaxation has been given to promoters for increasing their holding beyond 5% but up to 10%. Such increase can take place only through preferential allotment. This is a special short term measure during the COVID 19 period and shall end with the end of the financial year on 31 March 2021.

By inserting a proviso after the first proviso under regulation 6(1)  further relaxation has been granted till March 31, 2021 and now a voluntary open offer can be made by the promoters even if they have acquired shares in the previous 52 weeks. This relaxation during this COVID -19 periods has been allowed together with the relaxation granted under regulation 3(2) by which open offer obligation shall not be attracted for the financial year 2020-21 if the promoter shareholding is increased beyond 5% and up to 10% in the FY 2020-21 by means of preferential issue. The net effect is that, now a promoter can first get preferential allotment done up to 10% and then go for voluntary open offer for additional  10% or more. The advantage to the promoter would be that in case of preferential allotment, the price shall be fixed with reference to historic price whereas the price to be offered in Open offer should be higher, else there will not be many takers for the Open Offer.

Shareholding pattern- disclosure should be made more relevant

Text of letter written to SEBI on  May 10, 2020 , Date of posting on the blog June 17, 2020

Suggestion for making the disclosure of shareholding pattern more relevant

Currently, the shareholding is disclosed as per  SEBI Circular No. CIR/CFD/CMD/13/2015 November 30, 2015. Table III - Statement showing shareholding pattern of the Public shareholder; Individuals – at point 3(a) states :

i. Individual shareholders holding nominal share capital up to Rs. 2 lakhs.

ii. Individual shareholders holding nominal share capital in excess of Rs. 2 lakhs

This has become absolutely irrelevant and serves no purpose. The market price of shares are really relevant. In case of TCS 2 lacs nominal value of shares will be valued at Rs. 37.8 Crores, in case of Nestle or Eicher motors etc. it will be around 3 crs. This certainly is not the intention.  It serves no purpose. The obvious objective is to find the number of small investors. In the Buy back regulation you have specified 2 lakhs worth of holding as on the record date will be categorised as small shareholders. The same definition should be extended here. A very small change is required to be done urgently.

VEDANTA vis-à-vis Adani Power delisting

SMALL INVESTORS’ WELFARE ASSOCIATION

Email : SirenBajao@gmail.com

Striking contrast in the speed of delisting process followed VEDANTA vis-à-vis Adani Power

Vedanta:

On 12 May 2020, the parent company of Vedanta Ltd. disclosed its intention to delist the company.  The target company, immediately on the same day informed stock exchanges at 20:19:18Hrs. about the delisting intentions of the promoters.

On 13^th May 2020 merchant banker was appointed u/r Regulations 8(1A) and 8(1D) to carry out due diligence. On 18^th May2020 Board meeting was convened  to

(i)             take on record and review the due diligence report of the Merchant Banker and 

(ii)            to approve/ reject the Delisting Proposal. The  Board of directors approved the proposal.

 On  25^th May 2020 Postal Ballot notice was issued.

On  25^th June, 2020,  Results for postal ballot shall be out.

This is probably the fastest any delisting proposal can move. Within 13 days the notice for postal ballot was issued by the company.

Adani Power

In juxtaposition to Vedanta, Adani Power also declared the intention of the promoters to delist. The time schedule so far in this case is as follows:

May 29, 2020, promoters informed the target company about its intention to delist. Co. informed stock exchanges on the same day.

Board meeting is convened on June 3, 2020; inter-alia to

1. To consider the Delisting Proposal;

2. Appointment of a merchant banker

3. To obtain from the Stock Exchanges, details of trading in shares of the

Company for a period of 2 (two) years prior to the date of board meeting

by top 25 (twenty-five) shareholders along with the details of off-market

transactions of such shareholders.

In case of Vedanta the Merchant banker’s report was obtained within 5 days and Board approval was obtained in 6 days of receipt of letter for delisting from the promoters, whereas in the case of Adani Power, the only milestone reached so far is, appointment of merchant banker. It is surprising to note that even for asking information from stock exchange about trading in shares by the top 25 shareholders,  the company thought a board approval is required.

June 14, 2020

VEDANTA DELISTING - Let's not stymie it.-follow up 06.06.20

SMALL INVESTORS’ WELFARE ASSOCIATION

Email : SirenBajao@gmail.com

VEDANTA DELISTING - Let's not stymie it.-follow up 06.06.20

Vedanta has declared the results today with a loss of Rs.12,083 Crs. This loss is not an Operational loss but an optional loss. The company has decided to take a hit of Rs. 17,132 Crs.in this quarter  as impairment in its oil assets.

As a shareholder of the company, I should be very upset at such a bad result but I am not. I am no longer a long term investor in the company. My immediate focus is DELISTING. The first question that comes to mind is why such a huge exceptional write down just before the big event of delisting? It seems that all these actions are supposed to lead the delisting offer to success. Puzzled? Let me explain. 

Assuming the success of the Postal Ballot, the delisting offer is now headed for Reverse Book Building (RBB). The discovered price in the RBB is the price at which the Acquirer/Promoter can delist the shares. How this price is discovered? The price at which the cut-off level is reached, i.e. the price at which the promoter’s holding is able to reach the 90% level, is the discovered price.  Had the results been very good, no doubt people’s expectation would have gone  up and the RBB price would have shot up. With such a bad result people would be willing to dump their shares. In fact if there was no overhang of Delisting offer, there would have been heavy selling on next trading day, i.e. Monday  08.06.2020 bringing down the price of the shares. As against this, if I am able to correctly understand the price movement on Friday (05.06.20) with heavy volume and  scheme of things to come, on Monday the prices will shoot up because with this kind of heavy write down, the success of the delisting offer is  ensured. How?

1.     At the first place the RBB itself will be lower and more reasonable and at an acceptable level for the promoters. Before such a bad result the, the prices of Vedanta shares were hovering in the region of 60-80, if there was no delisting, you can bet, the price would have slipped further. It is now in the interest of the shareholders to pray for the success of the delisting. Be reasonable. A 50% premium to the indicative price will mean a price around 125-135. This should be acceptable to the acquirer.

2.     Secondly, recall what happened  in the case of LINDE India(January 2019)? The discovered price was Rs.2,000/- as against the market price of about 700, the acquirers called–off the delisting. It seems that the promoters of Vedanta are preparing themselves for such an eventuality. By taking such a huge impairment/loss they are reducing the book value. As per Regulation 16(1A) of the Delisting regulations, the promoters are now allowed to give a counter offer but such counter offer cannot be lower than the Book- Value. On a rough calculation, the book value is coming to around 148.

Thus my guess is that the delisting offer can fetch you a price of around 125 or a maximum of Rs.150.

6^th  June 2020

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. 

Reliance Rights issue- Difficulties to Small investors

TEXT OF LETTER WRITTEN TO SEBI AND MERCHANT BANKERS  OF RELIANCE

The present Rights issue of Reliance has many first to its credit. The biggest Rights issue in the country has come in the most difficult time in the world history, a never heard of event LOCKDOWN. It is completely paperless. The abridged Letter of offer keeps on referring to page nos. of Letter of offer, no such link for which is given in the letter. In spite of the lockdown the entire process has come at a very high speed. Small investors just could not cope with the speed in this lockdown period.  With no newspapers, magazine or postal letters, everything is left to digital world. There is no public transport and no access to cheque books etc.

Many shareholders are likely to miss the deadline for investment. We have been receiving several complaints and grievances from small shareholders.

Please take care of Small shareholders; those who are holding shares valued at less than 2 lakhs as on the record date. The closing date for the issue may be extended. Alternatively a new and unique suggestion may be looked into and implemented. Keeping in mind the objective of putting the funds already collected to good corporate purposes at the earliest, you may allow further time for this segment alone. In essence the scheme for mitigating the difficulties of small investors and senior citizens who cannot move out in the lockdown and are also not tech-savvy, shall work as follows:

1.      Complete the process of allotment against the rights issue as per schedule.

2.      Small shareholders be given preference for allotment of additional shares so that they are not crushed under the financial muscle power of persons with deep pockets.

3.      For allotment of additional shares, the proportionate allotment should start after first allotting 100 shares to all the shareholders who have applied for additional shares.

4.      Small shareholders who could not participate in the rights issue should be given an option to participate and subscribe for their rights up to a further period of 3 months. To enable this, the promoters should give the shares  from their holding, since in any case, the promoters  would have benefited by allotment of additional shares out of such unsubscribed portion.

5.      There are many shareholders who do not have Demat account. They are not  allowed to renounce their holding. This is absurd and robbing them of their valuable property. A female investor complained that she holds the shares in her maiden for which no Demat account was ever opened. She wanted to apply in her married name but is not able to do since she is not allowed to ‘Renounce’ her rights.

You are requested to please take immediate  action to protect the interest of small shareholders and oblige.