Taxmann's Analysis | SEBI Updates Delisting Norms – Introduces Fixed Delisting Price and Framework

Page 1


1. Introduction

The Securities and Exchange Board of India (SEBI) has introduced pivotal amendments to the SEBI (Delisting of Equity Shares) Regulations, 20211. Aimed at enhancing the efficiency and transparency of the delisting process, these revisions include the implementation of ‘Fixed Delisting Price’ norms, the establishment of eligibility criteria for counter-offers, and the introduction of a new framework specifically for delisting Investment Holding Companies (IHCs). Here are the main highlights of these amendments:

2. Introduction of ‘Fixed Delisting Price Norms’ for Efficient Delisting Process

The Securities and Exchange Board of India (SEBI) has instituted the ‘Fixed Delisting Price’ norms under Regulation 20A to streamline the delisting process. According to these norms, an acquirer can pursue delisting through a fixed-price method only if the shares of the company are frequently traded. Moreover, if the acquirer chooses this fixed-price approach, the proposed fixed delisting price must be at least 15% higher than the floor price as determined under Regulation 19A. Additionally, the acquirer is required to accept all equity shares tendered in the delisting offer, provided that the combined post-offer shareholding of the acquirer and the shares tendered by public shareholders reaches 90% at the offered fixed delisting price. SEBI has also implemented several other amendments related to the adoption of this fixed-price process.

2.1. Definition of ‘Fixed Delisting Price’

The ‘Fixed Delisting Price’ is the predetermined price at which the acquirer proposes to buy out the equity shares from the shareholders during the delisting process via a fixed-price method.

Comments

The fixed-price pathway assures both acquirers and shareholders a definitive price point for the delisting offer. This certainty facilitates informed decision-making by shareholders regarding their participation in the delisting process at the predetermined price. It also provides acquirers with a clearer financial planning framework for arranging the necessary funds, as the exit offer price is established in advance. Moreover, setting a fixed price for delisting helps mitigate potential market volatility typically associated with delisting announcements.

3. Redefinition and Calculation of Floor Price under SEBI Delisting Regulations

The Delisting Regulations have historically set the ‘floor price’—the minimum price an acquirer must offer—as calculated under Regulation 8 of the Takeover Regulations, subject to periodic amendments. SEBI has introduced Regulation 19A, which updates this definition to ensure a fair pricing mechanism in the delisting process. Under the new definition, the floor price for equity shares2 slated

2 Regulation 2(1)(m) of SEBI (Delisting of Equity Shares) Regulations, 2021

for delisting through either the reverse book building process or the fixed price process must be the highest of the following:

(a) The volume-weighted average price of acquisitions made by the acquirer and persons acting in concert over the 52 weeks preceding the reference date;

(b) The highest price paid or payable for any acquisition by the acquirer, with persons acting in concert, during the 26 weeks preceding the reference date;

(c) The adjusted book value derived from consolidated financial statements as evaluated by an independent registered valuer, except for Public Sector Undertakings;

(d) The volume-weighted average market price over the 60 trading days prior to the reference date on the stock exchange that records the highest trading volume, applicable only if the shares are frequently traded;

(e) A valuation is determined by an independent registered valuer, factoring in the book value, comparable trading multiples, and other standard valuation metrics relevant to companies within the same industry for shares that are not frequently traded.

The ‘reference date’ for calculating the floor price is designated as:

(a) The date of the initial public announcement by the acquirer, if made before the market closes; or

(b) The subsequent trading day is if the announcement occurs after the market closes or on a non-trading day.

Comments

These amendments harmonize the delisting and Takeover Regulations, clarifying and simplifying compliance for entities involved in both delistings and takeovers. The focus on volume-weighted prices reflects a commitment to market-driven valuations, promoting fair and competitive offers. Furthermore, the specification of a clear reference date for floor price calculations aids in reducing legal disputes and enhances certainty for all parties involved.

4. Introduction of Eligibility Criteria for Counter-Offers under Delisting Regulations

Previously, the Delisting Regulations lacked specific guidelines for making counter-offers when the initial delisting price was found to be unacceptable. SEBI has addressed this by amending Regulation 22(4) to establish clear eligibility criteria for counter-offers during the delisting process via the reverse bookbuilding mechanism. An acquirer is now permitted to make a counter-offer to public shareholders under the following conditions:

(a) The acquirer’s post-offer shareholding, along with the shares tendered by public shareholders, must reach at least 75%.

(b) A minimum of 50% of the public shareholding must be tendered.

Additionally, any counter-offer must be made within two working days following the end of the bidding period. The counter-offer price must not be below the higher of the volume-weighted average price of the shares tendered in the reverse bookbuilding process and any indicative price previously proposed by the acquirer.

Comments

This regulatory update introduces necessary eligibility criteria for counter-offers, which enhances the rights and decision-making capacity of shareholders during delisting processes. By setting these benchmarks, SEBI ensures that shareholders have more leverage and clearer options, thus fostering fair negotiations and competitive pricing, ultimately safeguarding their interests.

5. Framework for Delisting of Investment Holding Companies (IHCs)

The SEBI (Delisting) Regulations, 2021 specifically exempt the delisting of equity shares of Investment Holding Companies (IHCs) when conducted under a court or tribunal-approved scheme of arrangement.

5.1. Procedure for Delisting of Equity Shares of an Investment Holding Company

The procedure for delisting equity shares of an IHC is structured as follows:

(a) The listed IHC must distribute its equity shares (net of pro-rata liabilities) held in other listed companies to its public shareholders proportionate to their shareholdings.

(b) The IHC should also make cash payments (net of pro-rata liabilities) to its public shareholders in exchange for shares or investments in unlisted companies and other assets proportional to their shareholding.

(c) The public shareholding of the IHC must be extinguished upon the completion of the transfers and cash payments via a selective capital reduction scheme under Section 66 of the Companies Act 2013.

(d) Following these transactions, the company must apply to the stock exchanges for delisting.

5.2. Conditions for Delisting Equity Shares of Investment Holding Companies

The delisting of IHC equity shares must also meet the following conditions:

(a) At least 75% of the IHC’s fair value should be from direct investments in equity shares of other listed companies.

(b) Compliance with SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, specifically Regulation 11, 37, and 94, and any relevant circulars.

(c) Approval via e-voting requires the votes in favour of the proposal to be at least double those against it.

(d) Detailed disclosures on the calculation of entitlement ratios and per-share consideration in the explanatory statement for the shareholders’ meeting notice.

(e) Submission of a joint valuation report by two independent registered valuers to the stock exchanges for public disclosure.

(f) An entitlement ratio confirmation report from a chartered accountant or merchant banker.

(g) The IHC’s shares must have been listed for at least three years and not be under suspension at the time of applying for delisting.

(h) The absence of any adverse orders against the IHC or its promoters/promoter group within the last three years.

(i) A restriction that delisted shares cannot be relisted for a period of three years post-delisting.

Comments

SEBI has tailored a unique framework for delisting IHCs, recognizing the complexities involved in accurately reflecting the intrinsic value of an IHC’s investments through standard market or floor pricing. This tailored approach addresses the potential discrepancies in valuation that might arise from the reverse book-building process, thereby ensuring a fair and equitable exit opportunity for public shareholders in such specialized scenarios.

6. Conclusion

The recent amendments by SEBI to the Delisting Regulations mark a substantial advancement in making the delisting process more transparent and efficient. The introduction of fixed delisting price norms brings much-needed certainty for both shareholders and acquirers, helping to minimize market disruptions. Moreover, the specialized framework tailored for delisting Investment Holding Companies (IHCs) recognizes the distinct nature of these entities and ensures that public shareholders are adequately compensated. These modifications not only streamline compliance but also reinforce shareholder protections, enhancing the overall integrity of the delisting process in India’s financial market. SEBI’s proactive measures lay a strong foundation for a more fair and transparent financial ecosystem, aligning with global best practices.

About Us

Founded 1972

Evolution

Expansion

From a small family business to a leading technology-oriented Publishing/Product company

Launch of Taxmann Advisory for personalized consulting solutions

Our Vision

Aim

Achieve perfection, skill, and accuracy in all endeavour

Growth

Evolution into a company with strong independent divisions: Research & Editorial, Production, Sales & Marketing, and Technology

Future

Continuously providing practical solutions through Taxmann Advisory

Our Strength

Core

Editorial and Research Division

Team

Over 200 motivated legal professionals (Lawyers, Chartered Accountants, Company Secretaries)

Expertise

Monitoring and processing developments in judicial, administrative, and legislative fields with unparalleled skill and accuracy

Impact

Helping businesses navigate complex tax and regulatory requirements with ease

Taxmann Today

Legacy Innovation Commitment

Over 60 years of domain knowledge and trust

Technology-driven solutions for modern challenges

Ensuring perfection, skill, and accuracy in every solution provided

Our Core Domain Areas

Income Tax

Corporate Tax Advisory

Trusts & NGO Consultancy

TDS Advisory

Global Mobility Services

Personal Taxation

Training Due Diligence

Foreign Exchange Management Laws

Due Dilligence

Advisory Services

Assistance in compounding of offences

Transactions Services

Investment outside India

Your Partners for Frictionless Advice

Goods

Transaction Advisory

Business Restructuring

Classification & Rate Advisory

Due Diligence

Training

Trade Facilitation Measures

Corporate

Corporate Structuring

VAT Advisory

Residential Status

A Glimpse of the People Behind Taxmann

Naveen Wadhwa

Research and Advisory [Corporate and Personal Tax]

Chartered Accountant (All India 24th Rank)

14+ years of experience in Income tax and International Tax

Expertise across real estate, technology, publication, education, hospitality, and manufacturing sectors

Contributor to renowned media outlets on tax issues

Vinod K. Singhania Expert on Panel | Research and Advisory (Direct Tax)

Over 35 years of experience in tax laws

PhD in Corporate Economics and Legislation

Author and resource person in 800+ seminars

V.S. Datey Expert on Panel | Research and Advisory [Indirect Tax]

Holds 30+ years of experience

Engaged in consulting and training professionals on Indirect Taxation

A regular speaker at various industry forums, associations and industry workshops

Author of various books on Indirect Taxation used by professionals and Department officials

Manoj Fogla Expert on Panel | Research and Advisory [Charitable Trusts and NGOs]

Over three decades of practising experience on tax, legal and regulatory aspects of NPOs and Charitable Institutions

Law practitioner, a fellow member of the Institute of Chartered Accountants of India and also holds a Master's degree in Philosophy

PhD from Utkal University, Doctoral Research on Social Accountability Standards for NPOs

Author of several best-selling books for professionals, including the recent one titled 'Trust and NGO's Ready Reckoner' by Taxmann

Drafted publications for The Institute of Chartered Accountants of India, New Delhi, such as FAQs on GST for NPOs & FAQs on FCRA for NPOs.

Has been a faculty and resource person at various national and international forums

the UAE

Chartered Accountant (All India 36th Rank)

Has previously worked with the KPMG

S.S. Gupta Expert on Panel | Research and Advisory [Indirect Tax]

Chartered Accountant and Cost & Works Accountant

34+ Years of Experience in Indirect Taxation

Bestowed with numerous prestigious scholarships and prizes

Author of the book GST – How to Meet Your Obligations', which is widely referred to by Trade and Industry

Sudha G. Bhushan Expert on Panel | Research and Advisory [FEMA]

20+ Years of experience

Advisor to many Banks and MNCs

Experience in FDI and FEMA Advisory

Authored more than seven best-selling books

Provides training on FEMA to professionals

Experience in many sectors, including banking, fertilisers, and chemical

Has previously worked with Deloitte

Contact Us

Taxmann Delhi

59/32, New Rohtak Road

New Delhi – 110005 | India

Phone | 011 45562222

Email | sales@taxmann.com

Taxmann Mumbai

35, Bodke Building, Ground Floor, M.G. Road, Mulund (West), Opp. Mulund Railway Station Mumbai – 400080 | Maharashtra | India

Phone | +91 93222 47686

Email | sales.mumbai@taxmann.com

Taxmann Pune

Office No. 14, First Floor, Prestige Point, 283 Shukrwar Peth, Bajirao Road, Opp. Chinchechi Talim, Pune – 411002 | Maharashtra | India

Phone | +91 98224 11811

Email | sales.pune@taxmann.com

Taxmann Ahmedabad

7, Abhinav Arcade, Ground Floor, Pritam Nagar Paldi

Ahmedabad – 380007 | Gujarat | India

Phone: +91 99099 84900

Email: sales.ahmedabad@taxmann.com

Taxmann Hyderabad

4-1-369 Indralok Commercial Complex Shop No. 15/1 – Ground Floor, Reddy Hostel Lane Abids Hyderabad – 500001 | Telangana | India

Phone | +91 93910 41461

Email | sales.hyderabad@taxmann.com

Taxmann Chennai No. 26, 2, Rajan St, Rama Kamath Puram, T. Nagar

Chennai – 600017 | Tamil Nadu | India

Phone | +91 89390 09948

Email | sales.chennai@taxmann.com

www.taxmann.com

Taxmann Bengaluru

12/1, Nirmal Nivas, Ground Floor, 4th Cross, Gandhi Nagar

Bengaluru – 560009 | Karnataka | India

Phone | +91 99869 50066

Email | sales.bengaluru@taxmann.com

Taxmann Kolkata Nigam Centre, 155-Lenin Sarani, Wellington, 2nd Floor, Room No. 213

Kolkata – 700013 | West Bengal | India

Phone | +91 98300 71313

Email | sales.kolkata@taxmann.com

Taxmann Lucknow

House No. LIG – 4/40, Sector – H, Jankipuram Lucknow – 226021 | Uttar Pradesh | India

Phone | +91 97924 23987

Email | sales.lucknow@taxmann.com

Taxmann Bhubaneswar

Plot No. 591, Nayapalli, Near Damayanti Apartments

Bhubaneswar – 751012 | Odisha | India

Phone | +91 99370 71353

Email | sales.bhubaneswar@taxmann.com

Taxmann Guwahati

House No. 2, Samnaay Path, Sawauchi Dakshin Gaon Road

Guwahati – 781040 | Assam | India

Phone | +91 70866 24504

Email | sales.guwahati@taxmann.com

Turn static files into dynamic content formats.

Create a flipbook
Issuu converts static files into: digital portfolios, online yearbooks, online catalogs, digital photo albums and more. Sign up and create your flipbook.