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SEBI has proposed to make delisting simpler and more transparent
When the Vedanta delisting process was called off by the company, it emerged that the company had made claims of successful delisting based on interim data rather than full data. This spurred the regulator to look at some serious changes in the delisting methodology as well as the requirements and the steps that companies must adhere to.
Written By Bani Thakkar
Table of Content
Improving disclosure practices
In the last two years, delisting in value terms was a fraction of the proposed delisting. Clearly, that tells the story of a delisting process that is fairly flawed. SEBI has put lot of focus on making the delisting process less opaque. Currently, companies have to only disclose the floor price but now they will be required to disclose the indicative price too. The indicative price should be the ballpark price that the promoters are willing to pay. This will give a much better picture to the stock investors about the price promoters are willing and able to pay. In the last two years, delisting in value terms was a fraction of the proposed delisting. Clearly, that tells the story of a delisting process that is fairly flawed. SEBI has put lot of focus on making the delisting process less opaque. Currently, companies have to only disclose the floor price but now they will be required to disclose the indicative price too. The indicative price should be the ballpark price that the promoters are willing to pay. This will give a much better picture to the stock investors about the price promoters are willing and able to pay.
Smoother delisting process
According to SEBI, the reverse book building or the RBB process also needed some major changes. To begin with, the company will have to convene a board meeting for approval of delisting within 21 days of getting the proposal. Going ahead, companies cannot disclose any unconfirmed bids to the exchange, as it had happened in the Vedanta case. In that case, bids worth 2 crore shares had vanished from the system at the last minute, giving rise to the fiasco. Also, the details of the success or failure of the RBB process will have to be made public within 2 hours of closure of bids. In short, the regulator proposes to make the delisting process more meaningful in the light of the Vedanta experience.
Not just a price signal
Legal experts have argued that these will not improve the success of delisting process; but that is not the point. The big learning from the Vedanta fiasco was that it was possible to play the price of the stock through management data flows. That is evident from the manner in which the price of Vedanta fluctuated wildly. One reason for the low success rate of delisting proposals is that most companies still use delisting proposals to give a signal of the promoter’s intent to support the price hoping to offer a floor to the stock price. The new regulations would ensure that only the really serious players will enter the delisting fray!