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New Delisting Regime: Key Highlights

The Securities and Exchange Board of India (“SEBI”) has amended the SEBI (Delisting of Equity Shares) Regulations, 2021 (“Amendment”). The new regime introduces fixed price delisting as an option for take-private transactions. In addition to the reverse book building (“RBB”) route, existing promoters can now use this new route, depending on the viability based on case specific nuances to take their listed entity off the exchange. The key parameters are summarised below:

Price

  • The minimum price for a fixed price delisting shall be at a 15% premium over the floor price. Fixed price delisting is available only if shares of the company are frequently traded.
  • Floor price for both, fixed price and RBB routes, must be the highest of the following:
    • volume weighted average price (“VWAP”) paid or payable for acquisitions by the acquirer and persons acting in concert (“PACs”) during 52 weeks prior to the reference date;
    • the highest price paid or payable for any acquisition by the acquirer and PACs during 26 weeks prior to the reference date;
    • adjusted book value (considering consolidated financials) as determined by an independent registered valuer. The adjusted book value will be computed as per the Explanation to Regulation 19A of the Amendment;
    • For frequently traded shares, VWAP (of market price) of 60 trading days prior to the reference date on the stock exchange, with maximum trading volume; and
    • For infrequently traded shares, the price shall be determined by an independent registered valuer, after taking into account the various valuation parameters.
  • The reference date for computing the floor price shall be the date of the initial public announcement (“IPA”) or the next trading day, if IPA is made after market hours or on a non-trading day.

    Applicability of the Amendment

    • Fixed price delisting route can only be taken if the IPA is made on or after September 25, 2024. Acquirers have the option to make delisting offers under the old delisting regulations up to 60 days from September 25, 2024 (i.e. till November 24, 2024).

    Counter-offer mechanism

    • Under the RBB route, an acquirer can make a counter-offer only if (i) the post-offer shareholding of the acquirer and PACs exceeds 75%; and (ii) at least 50% of the public shareholders have tendered their shares.
    • The counter-offer price must be higher than: (i) VWAP of the shares tendered in RBB during the tendering period; and (ii) indicative price (if any). Depending upon the cumulative shareholding of the acquirer post the tendering period, the VWAP for the counter-offer will be computed as per the Explanation to Regulation 22(5) of the Amendment.
    • Counter-offer mechanism is not available for fixed price delisting. This acts as a limitation to the fixed price route. This must be taken into consideration while choosing the delisting route.

    Special provisions for delisting of Investment Holding Companies (“IHC”)

    In addition to the RBB and fixed price delisting route, if an entity qualifies as an IHC under the prescribed parameters, then delisting can be attempted through this route as well, in which case, the National Company Law Tribunal (NCLT) will come into the picture:

    • IHC with at least 75% of its fair value comprising direct investments in equity shares of other listed companies can directly delist through a scheme of arrangement approved by the National Company Law Tribunal/ court after meeting the conditions specified in the Amendment. The fair value will be calculated as per the parameters in the Explanation to Regulation 38(3)(i) to the Amendment.
    • The scheme (essentially a squeeze out mechanism) will involve: (i) pro-rata distribution of listed securities to public shareholders; (ii) cash payment to public shareholders for investments in unlisted companies and other assets; and (iii) capital reduction of the public shareholding in the IHC.
    • Although this may work like a squeeze out, the shareholders’ voting requirement is the same as a delisting achieved without going through the scheme route, i.e: 2/3rd of the public shareholders have to vote in favour of the scheme.

    We will deep dive into the nuances of this new regime in another post.