Summary: SEBI has introduced regulatory reforms to simplify the delisting process for companies and address previous challenges highlighted by Vedanta Limited’s delisting attempt in 2020. Previously, the Reverse Book Building (RBB) process, which required price negotiation between public shareholders and the buyer, often led to locked-in prices and halted delisting efforts. To streamline this, SEBI’s new fixed price approach requires buyers to offer a premium of at least 15% over the floor price, removing RBB’s complexity and speeding up delisting. SEBI has also introduced an adjusted book value, which adjusts the floor price to reflect asset values ​​more accurately, preventing potential market manipulation and providing fairer pricing for investors. In addition, the reference date for floor price calculation is now aligned with the first public announcement, reducing the risks of price manipulation over longer timelines. SEBI has further lowered the counter-bid threshold under RBB, allowing acquirers to bid if they secure 75% shareholding with at least 50% of the public shareholders bidding. Despite process simplifications, SEBI maintains protections for minority shareholders, as delisting still requires 90% shareholder approval. These reforms aim to balance transparency, efficiency and investor protection, encouraging more companies to consider delisting while protecting market integrity. Continuous SEBI scrutiny will be critical to ensure that these changes achieve intended objectives without unintended effects.

Beginning

In India’s financial system, delisting – the process of removing shares from trading on stock exchanges – has traditionally been a difficult and complicated task. Depending on the situation, this procedure basically turns a listed company into either an unlisted public company or a private company. However, two main challenges usually hinder the path to a successful delisting: excessively high discovered prices and insufficient tendering of shares by public shareholders after counterbids.

A shining example of these difficulties is Vedanta Limited’s failed delisting bid in 2020. Although a delisting price of INR 87.5 was set, most of the proposals came at INR 320 per share, resulting in an insurmountable difference that ultimately brought the delisting process to a screeching halt. This case made clear how urgently India’s delisting system needs legislative change.

Latest SEBI Addendum: An Evolution in Approach

The Floor Price Method: Introduction

To speed up the delisting process, the Securities and Exchange Board of India (SEBI) has just adopted notable changes. The introduction of an alternative to the conventional reverse book building (RBB) technique marks one of the most obvious developments. The new fixed price method marks a fundamental change in approach to price discovery and is applicable to companies that have regularly traded shares.

Under the conventional RBB approach, public shareholders and the acquiring company interacted complexly to find out prices. After careful disclosure of the floor price and offer price, the buyer would allow public shareholders to propose exit prices either at or above the offer price. Although this mechanism was democratic, it sometimes led to a pricing impasse.

By mandating listed companies to propose a fixed price of at least 15% premium over the floor price during the detailed public announcement, the new fixed price technique streamlines this procedure. This removes the requirement for the conventional price discovery route via RBB, potentially simplifying the entire delisting process. But this strategy also raises questions of price alignment, especially in times of market volatility, which requires continuous monitoring and regular premium changes by SEBI.

Change book value application

Excluding Public Sector Undertakings (PSUs), SEBI has added a second measure to determine floor pricing for both regularly and infrequently traded stocks. For stocks whose market value would not fairly represent their fair value, this new adjusted book value method combines the book value of assets and liabilities. This invention aims to reduce the possible market manipulation during the delisting process while providing investors with more reasonable pricing.

Reference date corrections

A major modification of the changes is the timing of the floor price reference date. This date was used to line up the company’s announcement to SEBI at the board meeting sanctioning the delisting plan. Like the takeover rules, the new amendments follow this reference date with the first public notification.

The delisting process is greatly affected by this development. Companies under Rule 10 of the Delisting Ordinance have twenty-one days from the first public announcement to hold their board meetings. Typically this time consists of appointing a Company Secretary for peer review to assess compliance with Rule 4(5). The long horizon of the previous strategy opened up chances for insider trading and market manipulation that could affect the floor price.

Moving the reference date helps the changes to give shareholders an opportunity for fair valuation and reduces the risk of price manipulation. This adjustment addresses the time sensitivity of equity markets as well as the vulnerability to market volatility during the long interval between public announcements and board meetings.

Lowering the counter offer threshold

The adjustments also resolve the difficulties with the counter-bid procedure in reverse book creation. Acquirers could only make a counter-offer in the past if their post-offer shareholding plus shares tendered in the delisting offer exceeded 90% of the total number of shares issued. Although most public shareholders approved the delisting, this high barrier often resulted in failed efforts to delist.

Provided that at least 50% of the public shareholders have tendered their shares, acquirers under the new structure can submit a counter-offer when the post-offer shareholding reaches 75% through the RBB price discovery process. However, only when the buyer’s total share after the offer reaches 90% will the delisting be effective. The counter-offer price must be the indicative price presented by the buyer or the volume-weighted average price of invited shares.

Influence and connotations

Transparency and market efficiency

A big step towards a more transparent and efficient delisting system is taken with the modifications. The fixed price method and modified book calculations provide better guidance for price discovery, potentially reducing the uncertainty and delays sometimes associated with delisting efforts.

Investor protection

The reforms maintain strong investor protection systems even as the process is simplified. A successful delisting requires 90% shareholding, and the minimum premium required in the fixed price method ensures that minority shareholders’ interests remain protected. Another protection against undervaluation of shares comes from the adjusted book value method.

Business adaptability

The reduced level of the counteroffer gives companies greater freedom to control the delisting process while retaining the necessary protections against forced delisting. This harmony between shareholder protection and business needs may inspire more companies to consider delisting when appropriate.

In all essentials,

The recent changes by SEBI in the delisting rules show a careful effort to solve the problems that have traditionally plagued the delisting process in India. These improvements aim to create a fairer and more efficient delisting system using alternative pricing methods, adjustments to reference dates and changes to threshold requirements.

The success of these changes will largely rely on SEBI’s continuous monitoring and readiness to make further changes depending on the state of the market. The reforms give companies greater freedom to achieve reasonable delisting targets while maintaining strong investor protection policies. This comprehensive approach ensures fair treatment of all stakeholders and can result in more effective delisting attempts.

Constant observation and evaluation will be absolutely critical as these improvements take effect to ensure they achieve their intended goals without generating unintended results. India’s delisting rules show how dedicated the regulator is to suit market demands while preserving the integrity of financial markets.