DELISTING

Strategic Financial Management

 DELISTING - MEANING

• The term “delisting” of securities means

permanent removal of securities of a
listed company from a stock exchange.
• As a consequence of delisting, the securities of
that company would no longer be traded at
that stock exchange.

Source: http://www.sebi.gov.in/Index.jsp?contentDisp=SubSection&sec_id=5&sub_sec_id=5
 The difference between
Voluntary delisting and Compulsory delisting

• Compulsory delisting refers to permanent removal

of securities of a listed company from a stock
exchange as a penalizing measure at the behest
of the stock exchange for not making
submissions/comply with various requirements
set out in the Listing agreement (Clause 49)
within the time frames prescribed.
• In voluntary delisting, a listed company decides
on its own to permanently remove its
securities from a stock exchange.

Source: http://www.sebi.gov.in/Index.jsp?contentDisp=SubSection&sec_id=5&sub_sec_id=5
 THE EXIT OPPORTUNITY available for INVESTORS
in case a company gets delisted?

• SEBI (Delisting of Securities) Guidelines, 2003

provide an exit mechanism, whereby the exit price
for voluntary delisting of securities is determined
by the promoter of the concerned company which
desires to get delisted, in accordance to book
building process.
• The offer price has a floor price, which is average of
26 weeks average of traded price quoted on the
stock exchange where the shares of the company are
most frequently traded preceding 26 weeks from
the date public announcement is made.
• There is no ceiling on the maximum price.
 INFREQUENTLY TRADED SECURITIES

• the offer price is as per Regulation 20 (5) of

SEBI (Substantial Acquisition and
Takeover) Regulations.
• For this purpose, infrequently traded securities
is determined in the manner as provided in
Regulation 20 (5) of SEBI (Substantial
Acquisition and Takeover) Regulations.
•
Source: http://www.sebi.gov.in/Index.jsp?contentDisp=SubSection&sec_id=5&sub_sec_id=5
ABOUT REGULATIONS
 MULTIPLE LISTING e.g., on RSEs

• Does a company listed at BSE/NSE have to

provide exit offer to shareholders in case it
delists from stock exchanges other than
BSE and NSE?
• No, the company does not have to provide exit
offer to shareholders because it continues to
be listed on the BSE / NSE which have
nationwide reach and shareholders can exit
any time they decide to so by way of selling
shares in NSE/ BSE.
•
Source: http://www.sebi.gov.in/Index.jsp?contentDisp=SubSection&sec_id=5&sub_sec_id=5
 SEBI Guidelines (2003) – APPLY TO

• Voluntary delisting being sought by the promoters

of a company.
• Any acquisition of shares of the company (either
by a promoter or by any other person) or
scheme or arrangement, by whatever name
referred to, consequent to which the public
shareholding falls below the minimum limit
specified in the listing conditions or listing
agreement that may result in delisting of
securities;
• Promoters of the companies who voluntarily seek
to delist their securities from all or some of the
stock exchanges;.
 SEBI Guidelines (2003) – APPLY TO

• Cases where a person in control of the

management is seeking to consolidate his
holdings in a company, in a manner which
would result in the public shareholding in the
company falling below the limit specified in
the listing conditions or in the listing
agreement that may have the effect of
company being delisted;
• Companies which may be compulsorily
delisted by the stock exchanges;
•
 SEBI Guidelines (2003) – VOLUNTARY

• Provided that the securities of the company have been

listed for a minimum period of 3 years on any stock
exchange.
• Provided further that an exit opportunity has been given
to the investors for the purpose of which an exit price
shall be determined in accordance with the “book
building process” described in clauses 7-10 and 13
and 14 of these guidelines.
• An exit opportunity need not be given in cases where
securities continue to be listed in a stock exchange
having nation wide trading terminals.
• Explanation: For the purposes of these guidelines, stock
exchange having nationwide trading terminals means
the Stock Exchange, Mumbai, the National Stock
Exchange and any other stock exchange, which may be
specified by the Board.
•
 SEBI Guidelines (2003) – Procedure for voluntary delisting

• Obtain the prior approval of shareholders of

the company by a special resolution passed at
its general meeting;
• Make a public announcement in the manner
provided in these Guidelines.
• Make an application to the delisting exchange in
the form specified by the exchange, annexing
therewith a copy of the special resolution
passed under sub-clause (a); and; (d) comply
with such other additional conditions as may
be specified by the concerned stock
exchanges from where securities are to be
delisted.
•
 SEBI Guidelines (2003) – Procedure for voluntary delisting

• The stock exchange(s) shall provide the

infrastructure facility for display of the
price at the terminals of the trading members
to enable the investors to access the price on
the screen to bring transparency to the
delisting process.
• In the event of securities being delisted, the
acquirer shall allow a further period of 6
months for any of the remaining
shareholders to tender securities at the same
price;
•
 SEBI Guidelines (2003) – Procedure for voluntary delisting

• The stock exchanges shall monitor the possibility of

price manipulation and keep under special watch the
securities for which announcement for delisting has
been made.
• To ascertain the genuineness of physical securities if
tendered and to avoid the bad delivery, Registrar and
Transfer Agent shall co-operate with the Clearing
House / Clearing Corporation to determine the
quality of the papers upfront.
• The paid up share capital shall not be extinguished as in
the case of buyback of securities;
• In case of partly paid-up securities, the price determined
by the book building process shall be applicable to the
extent the call has been made and paid.
• The amount of consideration for the tendered and
accepted securities shall be settled in cash;
 SEBI Guidelines (2003) –
DELISTING OF ONE OR ANY CLASS OF SECURITIES

• A company may delist one or all of its class of

securities subject to the provisions of this
clause.
• If the equity shares of a company are delisted,
the fixed income securities may continue to
remain listed on the stock exchange.
• A company which has a convertible instrument
outstanding, it shall not be permitted to delist
its equity shares till the exercise of the
conversion options.
•
 SEBI Guidelines (2003) –
REINSTATEMENT OF DELISTED SECURITIES

• Reinstatement of delisted securities should be

permitted by the stock exchanges with a
cooling period of 2 years.
• In other words, relisting of securities should be
allowed only after 2 years of delisting of the
securities.
• It would be based on the respective
norms/criteria for listing at the time of making
the application for listing and the application
will be initially scrutinized by the Central
Listing Authority.
•
 SEBI Guidelines (2003) –

• PROCEDURE
• The decision on delisting should be taken by a panel
to be constituted by the Exchange comprising the
following :
a. Two directors/officers of the Exchange (one
director to be a public representative)
b. One representative of the investors

c. One representative from the Central Government

(Department of Company Affairs)/ Regional

Director / Registrar of Companies
d. Executive Director / Secretary of the Exchange

•
 Avery India delisting plan fails

• Enam Securities, manager to the open offer for 21.56

per cent residual minority shareholding in Avery India,
following an overseas change of promoters in the
company, has declared that the collective response
was short of the target.
• Enam, on behalf of A V Acquisition Co.3, an affiliate of
the buy-out firm European Capital SA, which took
over Avery’s UK parent, Avery Weigh-Tronix
Holdings, has informed BSE today that some 4.85 per
cent of the voting rights (4,76,394 shares) could be
acquired only.
• This implied that the plan has fallen through. The
targeted and eventual delisting proposal has also
failed in the process, at least for the time being.

Source: The Hindu Business Line, August 22, 2007

 Avery India delisting plan fails

• The acquirer had revised the price upwards from Rs

55 per share to Rs 80 per share.
• However, the resistance from the small
shareholders to the revised price saw a less than
enough response.
• LIC, United India Insurance and CD Finvest,
three major among the non-promoter holders,
reportedly have not responded to the offer.
• The stock today closed at Rs 65.60, down 2.5 per
cent.
• Interestingly, the stock had reached its year high at
Rs 82 on May 17, 2007.
•
Source: The Hindu Business Line, August 22, 2007
 SEBI backs different method for pricing of delisted shares

• Aiming to provide a fair share price to retail investors of

delisting companies,
• Proposed an alternative mechanism for determining the price
to be offered by promoters to shareholders.
• Revised draft regulations - Sebi suggested doing away with
the current book-building route for determining the price at
which shareholders of delisting companies tender shares.
• Such a practice leads to cauterization (destroy damaged or
infected tissue, with a heated instrument, a laser, an electric
current or a caustic substance) and gives disproportionate
power to those holding majority shares.
• According to the proposed norms, the offer price would not
be less than floor price plus 25% premium or fair price
plus 25% premium, whichever is higher.
•
• Source: Times of India, November 24, 2006
 SEBI backs different method for pricing of delisted shares

• Floor price would be determined by high and

low of closing prices of securities and other
parameters like return on net worth, while fair
price would be ascertained by an
accredited credit rating agency.
• Promoters would not be allowed to delist
companies from bourses if promoters
(together with persons in concert) stake is not
likely to increase above 90% even after
tendering of shares.
•
Source: Times of India, November 24, 2006
 SEBI backs different method for pricing of delisted shares

• In case a company has minimum public

shareholding of 10% under the listing
agreement, promoters’ stake has to go up
above 96% after tendering of shares.
• The draft suggests converting norms for
delisting into regulations to give them legal
sanctions.
• Delisting from bourses would not be allowed if
the stake of promoters is not likely to increase
above 90% even after tendering of shares.
•
Source: Times of India, November 24, 2006
 MNCs delist in India on REVELATION FEARS
by Indrajit Basu

• They came, they saw and they made money. And when they
realized that their perception among investors was not what
it used to be, they started slipping out of the limelight by
delisting the shares of their Indian subsidiaries.
• Quietly, MNCs in which the parental holding is 60 percent
and above, are seeking to delist.
• A concerned industry lobby, the FICCI, is trying to
ascertain the reasons behind the exodus of multinationals.
• The ruling BJP believes that MNCs have blatantly
disregarded Indian laws and the interests of minority
investors by delisting from India.
• P. N. Vijay (Delhi-based investment banker and conveyor
of the BJP’s central economic cell) – “MNCs [in India]
show scant respect for Indian laws. We should deal firmly
with multinationals that try to act funny with us.”

Source: http://www.atimes.com/atimes/South_Asia/EF25Df03.html
 MNCs delist in India on REVELATION FEARS
by Indrajit Basu (JUNE 25, 2003)

• A number of MNCs have converted their public listed

Indian companies into wholly-owned subsidiaries by
acquiring the shares of retail and institutional investors
through the open offer or buyback route over the past
few years.
• SEBI - Nearly 75 percent of the MNCs still operating
and listed on the exchanges are eager to opt out as
they are no longer under the compulsions that forced
them to get listed in the first place.
• Moreover, over 50 MNCs have delisted their subsidiaries
from Indian stock exchanges over the past three years,
out which as many as 35 made open offers for
delisting in the 12 months ending in January, 2003.


Source: http://www.atimes.com/atimes/South_Asia/EF25Df03.html
 MNCs Delist

• FICCI Secretary General Amit Mitra – “We are studying

this matter for both its pros and cons.”


• Muted Opposition from investor interest groups initially.



• “It is a matter of complete control of the company. If a

company is 100 percent owned, its balance sheet
remains unavailable to public knowledge, and so do
their strategies.”
 - Analyst John Band of Zoom Cortex, an advisor to
MNCs.


Source: http://www.atimes.com/atimes/South_Asia/EF25Df03.html
 MNCs’ Viewpoint

• What has prompted a fear of remaining listed is the

constant scrutiny to which these companies are
regularly subjected by Indian listing laws of
dissemination of information in a transparent
manner.
• These laws, like any other country, mandate that a listed
company provide all information to its investors, and
that this then becomes available to anyone within
the public domain.
• Investors can question the decisions of MNCs at
annual shareholder meetings, as can stakeholders
such as financial institutions and big creditors.
• In contrast, a privately-held, or delisted company, can
easily escape such public scrutiny.

Source: http://www.atimes.com/atimes/South_Asia/EF25Df03.html
 SEBI backs different method for pricing of delisted shares

•
According to the Indian daily, Business standard,
"Promoters are now seeking voluntary delisting from
regional stock exchanges to save on listing costs.
Regional bourses are becoming redundant because of
technological disadvantages. Almost 99.9 percent of
trading volumes are recorded on the two major
exchanges, the Bombay Stock Exchange [BSE] and
the National Stock Exchange [NSE]. With most
regional exchanges reporting minuscule volumes,
promoters prefer to pay listing fees to only the two
most liquid exchanges instead of paying annual
charges to all of them."

Source: http://www.atimes.com/atimes/South_Asia/EF25Df03.html
 SEBI backs different method for pricing of delisted shares

• But skeptics like P N Vijay feel that MNCs operating in

India are desperate to hide.
• “They want to conceal. The reason is, during the recent
difficult times that the Indian economy has faced,
many companies had to take controversial decisions
that general investors may not now like,”.
• For instance, a company may need to sack people, or
introduce new products where there’s a risk of failure,
or may take a strategic decision to incur losses to grab
a higher market share.


Source: http://www.atimes.com/atimes/South_Asia/EF25Df03.html
 PUBLIC SCRUTINY OF LISTED MNCs on Indian bourses

• COKE Example
• The Indian subsidiary has an accumulated loss of over $300 million, owing
to its obsession with acquiring market share. It has only recently started
claiming that it is earning operating profits.
• Coke India has been fighting a mandatory listing for the past two years,
mainly on the ground its bottom line, smeared in red, will make it
impossible for the company to attract fair valuations when it goes public.
• It has been negotiating with its bottlers on sensitive issues like proposed
investments to modernize bottling units, pricing mechanisms and
enforcing its processes and systems on them, and fears that a public
listing at this stage will bare its strategies to its competitors, (read Pepsi).
• Coke India has managed to get a reprieve, though, from the government,
which has now agreed to allow it to divest its parent’s stake to just a
handful of Indian investors that have a stake in the company.
 Reckitt Benckiser came under SCANNER

• Drug company, Reckitt Benckiser, underwent a drastic

change in its structure after a global M&A deal.
• Subsequently, all strategies were tweaked, especially in
developing markets.
• To cite just one instance, in August 2001, it tinkered with
pricing and the formula of one of its largest-selling
OTC drugs in India, Disprin.
• It tried to extend the Disprin brand into the cardio-
vascular segment to earn more revenue, and hence
higher profits. But that turned out to be a controversial
decision.
• The move was strongly opposed by analysts, investors
and even within the medical profession.
 MNCs vs. Local Investor

• Those against MNCs delisting argue that while

some of their fears may be real, the true
question is the spirit behind delisting (or the
opposition to dilution).
• “The same fears work in the global environment,
but one rarely does one hear of MNCs delisting
from exchanges in their respective home
countries. So, why do it in India?”
 - A disgruntled investor (For over five
decades and has investments in MNC stocks)
 NO BODY HAS A SAY IN INDIA (against MNCs)?

• In India, delisting is easy, small investors have little

say in the decision and cannot oppose it, and the
market regulator is weak and lacks teeth.
• Imagine the way its Securities and Exchange
Commission and US investors will react to any
delisting move.
• They will make sure that a company undergoes
intensive scrutiny before such a decision is
cleared.
• In contrast, no one really cares in India.
 PRITHVI HALDEA, MD of PRIME Database
• While the reason for MNCs to delist could be justified, it
is a fact that they have given minority investors a bad
deal.
• These MNCs raised money from small investors when
they came to India.
• They grew big on these very investors’ money.
• Most of these companies have a large capital base and a
large investor base.
• But the buy-back prices being offered to small investors
are unfair since the offers [to acquire from the market]
are made on a six-month average price.
• A formula could have been evolved based on say a two to
three year price average, along with the peak price.
 CII and CII DG Tarun Das

• MNCs should be allowed to exit freely to

adhere to the country’s spirit of liberalization.
• “It is natural as regulatory reforms take place.
Given that sectoral caps on foreign direct
investments have been removed from most
of the Indian industry sectors, it is not
surprising that delistings are taking place.”
 Profitable unlisted PSUs to head to market:
LISTING: WHY TEN PER CENT?

• DISINVESTMENT MOVE
• Unlisted companies with a positive net worth going to the stock market.
• Announced by Home Minister P Chidambaram after a meeting of the Cabinet
Committee on Economic Affairs, opens the doors for around 50 companies
to get listed, prominent among them being Bharat Sanchar Nigam Ltd,
RITES Ltd and Ircon.
• Besides, listed government companies that are profitable and have less than 10
per cent floating equity will also be going to the market.
• Though, 18 government companies are listed and do not comply with the
mandatory 10 per cent norm, about 10 such companies are profitable
and will need to come out with a follow on issue. These include MMTC
Ltd and National Mineral Development Corporation. The government will
need to disinvest 8.3 per cent in NMDC and 9.3 per cent in MMTC to
increase the public float to 10 per cent.
• The money from disinvestment will go into the National Investment Fund
(NIF) created in 2005.
•
Source: Business Standard, November 6, 2009
 No. of listed PSUs to triple after disinvestment plan

• The number of listed PSUs in the country is likely to

triple in the months to come with the government
(As disinvestment plan that seeks to list all
profitable PSEs)
• At present there are around 55 listed public sector
entities - Number could go up to over to 150, as
nearly 100 others, including BSNL, qualify for the
listing.
• Meanwhile, the market cap of the 150 listed
companies would represent a huge chunk of the
total market cap of all the firms listed on the BSE.

Source: Business Standard, November 6, 2009

 No. of listed PSUs to triple after disinvestment plan

• At the end of Nov. 15, 2009 trade the m-cap of the companies
in the BSE PSU index stood at Rs 15.76 lakh crore,
accounting for one-third of the total m-cap of BSE, which
stood at around Rs 54 lakh crore.
• The major surge in the m-cap tally would be from telecom
major BSNL, an unlisted entity, whose valuation has been
pegged at about $100 billion and a paid-up capital of about
Rs 5,000 crore.
• In its second term, the Congress-led government has already
paved the way for listing of two PSUs - NHPC and Oil
India, and decision on Nov. 15, 2009 would result in more
CPSEs hitting the capital market.
•

Source: Business Standard, November 6, 2009

 Lotte India plans delisting

• Lotte India Corporation Ltd

• EGM on April 9 2009 to seek shareholders’ approval
for delisting the company from the stock
exchanges.
• March 13 2009 - The company informed the stock
exchange that the company has received a proposal
from its Korean parent Lotte Confectionery Co,
which holds 80.39 per cent of the equity, capital to
acquire the other 19.61 per cent of equity shares of
the company in accordance with SEBI (Delisting of
Securit ies) Guidelines, 2003.

Source: The Hindu Business Line, March 14, 2009

 Lotte India plans delisting

• For the quarter ended December 31, 2008, it trimmed its net
loss to Rs 1 crore on a turnover Rs 44.5 crore from the net
loss of Rs 2.7 crore on a turnover of Rs 38.5 crore posted in
the comparable quarter in the previous year.
• For the whole of last fiscal it reported a net loss of Rs 5.8 crore
on a turnover of Rs 154.1 crore.
• Last year too the company made an attempt to buy back its
shares through the reverse book-building route and
appointed SBI Capiral Markets to manage the offer.
• Then, the floor price was fixed at Rs 300 per share. However, it
later informed that it could not accept the discovered price
of Rs 825 per share.
•

Source: The Hindu Business Line, March 14, 2009