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business | IST

Amendments to delisting rules: Experts decode benefits of the changes

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The change started happening in 2015, then it further happened in 2018 by giving a counteroffer. Now there is a further change in that and I still see a final step to be done which is the final removal of reverse book building. That is the one which is going to help your acquisitions and the takeovers in a very smooth way, says expert.

India is perceived to be a tough market for delisting and that has not only averted the MNCs from listing here but have made many buyouts very cumbersome. The recent amendments made by the market regulator SEBI which allows open offer and delisting together at differential pricing will make merger and acquisitions (M&A) easier.
Sebi has been bringing about changes for ease of delisting keeping investor protection intact.
To discuss this, CNBC-TV18 spoke with experts Cyril Shroff, Managing Partner, Cyril Amarchand Mangaldas, Sunil Sanghai, Founder & CEO, NovaDhruva Capital and Vibhor Talreja, MD, Everstone Capital Advisors on this subject.
Talking about the open offer and delisting at differential pricing giving a likely boost to the buyout situations, Sanghai said every mature market entry and exit has to be seamless. On the entry front clearly, we have done a lot of work including in the recent IPOs if one were to see the new edge companies etc., we have really facilitated the smooth entry of these companies. However, on the exit front, we still need to do some work and delisting is an important factor.
According to him, what used to happen so far is that if there was a mandatory open offer, then one has to just do the mandatory open offer and wait for delisting subsequently. When there was a change which came in 2015, it allowed that instead of mandatory open offer, one could go down the delisting way, make a delisting offer and if that offer is successful then you delist your company. However, if it is not successful, then you come back and pick up the same track, which is the open offer track and complete the mandatory open offer which is a regulatory requirement, said Sanghai.
“The latest change tries to harmonise the two rather than doing sequentially one after another which is to do delisting and if you fail, that go back to the open offer,” said Sanghia, adding that it was a very welcome change.
According to Shroff, this is not only about ease of exit and entry being similar." I think there is a deeper philosophical point here, which is that for a maturing capital market, and from a point of view of moving towards better governance, you need a very efficient market for a change of corporate control, he said.
“Corporate control is an asset by itself and there is a market for it. And we've had many inefficiencies in it, and this was one of the big ones, namely the ability to sort of delisting without problems. So solving a problem both at a technical level, as well as at a philosophical level, though some more work needs to be done,” he added.
“I see two big, you know, big changes in this, which are two most important psychological thresholds that Sebi has crossed over here. First and foremost is they have effectively put aside or abandoned the concept of reverse book building, at least for the first attempt and that is a massive chain because we have been trying for it for decades and this is a breakthrough. So that is one big change. The second is really the fact that you can do it simultaneously.
Sebi in its press release itself admits, and they use the word directionally contradictory transactions in a sequence and that is a big admission that the current process that they had of if you cross 75, you don't achieve delisting, you have to come down and you have to do these back to back transactions. The fact that they are now going to be rational and convenient, in terms of the way forward where you get a 12 month period to make successive attempts at delisting. That's a big change as well,” Shroff explained.
Therefore, these two things together are almost like a generational change in thinking from the Sebi side, and these are not cosmetic changes. I personally think that this is going to make a big difference to the market for corporate control, both for strategic acquirers, as well as private equity acquires - this is going to be a big boost for control transactions, Shroff said.
Talking about buyout situations, Talreja said, on the one side, we are living in a market that has seen unprecedented IPOs but we often forget that there are  potentially few companies that would like to delist and delisting used to be reasonably rigid and practically not possible. And the changes that we see today are one additional step towards that. We should not look at them as one adhoc step, because Sebi has been easing the delisting process over time step by step, continuously, there were changes in June, which made the process much easier before that there were changes last year, which allowed a counteroffer and so on and so forth.
So, one that option now has become easier and two, about M&A, all of us have been part of more than a few M&A transactions, where foreign strategic keen interest on acquiring control of an Indian entity waned significantly because the company was listed and delisting for all practical purposes was not possible. That interest that waning of interest is bound to change now, with these prudent and balanced guidelines from a forward market-looking regulator like Sebi. I have zero doubt that these guidelines would provide a much-required spur to particularly inbound M&As of listed companies, said Talreja.
Throwing further light on delisting process, Sanghai said there are various pockets of capital. There is a pocket of capital which is okay with the listed situation and exposure to the larger market. There is another pocket of capital that wants an unlisted block and in that situation ou have to provide a smooth exit to a listed company.
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Therefore, delisting and to manage a squeeze-out is an important part. If you go back in history, up until 2003, we didn't have so much of a problem of delisting. It's in 2003, we introduced reverse book building and the concept of reverse book building was to protect the minority shareholder so that you don't delist at an artificially low price and the investor has a choice to tender at a price at which they want to exit - that created a problem because it had a lot of other consequences.
However, the regulators are mindful of that. The change started happening in 2015, then it further happened in 2018 by giving a counteroffer. Now there is a further change in that and I still see a final step to be done which is the final removal of reverse book building. That is the one which is going to help your acquisitions and the takeovers in a very smooth way, specified Sanghai.
For the entire discussion, watch the video