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Analyzing SEBI proposed Voluntary Delisting of Equity Shares: Alternative to Reverse Book Building Process

It's been a while since SEBI has received several suggestions and representations from the industry, market participants various stakeholders, etc. regarding the review of the delisting regulations. SEBI realized the need for a comprehensive review of Delisting regulations with the changing market realities and to enhance the efficiency of the delisting mechanism.

The subgroup that comprised members from the Primary Market Advisory Committee (hereinafter referred to as "PMAC") was constituted for the review and provide detailed recommendations to make delisting regulations, more rational and convenient for companies to balance the interests of all stakeholders i.e., investors, shareholders, promoters, and acquirers. The sub-group submitted the report on August 08, 2023, setting out various policy recommendations. The report was also placed for consideration before PMAC, wherein PMAC agreed with the recommendations.

Delisting regulation in India relies on the rules & guidelines laid down by the Securities and Exchange Board of India (SEBI) governing the procedure of disposing of a publicly listed company's stocks from a stock exchange. Delisting can arise voluntarily, at the request of the company, or involuntarily, as mandated via the stock exchange or regulators because of non-compliance or different motives.
  1. Voluntary Delisting: The company can choose voluntary delisting from the stock exchange if it meets certain standards set via SEBI. The company should propose to buy back shares from existing shareholders at a fair rate & the delisting procedure includes acquiring approval from a majority of minority shareholders.
  2. Process of Delisting: SEBI has described some specific processes for delisting, which include public announcements, open offers & a mechanism for price discovery. The process provides protection for the interests of minority shareholders.
  3. Price Discovery: The delisting price ought to be decided via a reverse book-building process. This includes shareholders indicating the minimal fee at which they may be inclined to sell their shares. The final delisting rate is normally the only one at which the maximum variety of stocks is offered.
  4. Exit Opportunity: Delisting regulations are designed to make sure that the minority shareholders acquire a fair and equitable exit opportunity. The company making the delisting offer should make sure that the determined price is fair & reasonable.
  5. SEBI Oversight: The process of delisting in India is regulated & overseen by SEBI, which ensures that the rules shall be followed & that the interests of all shareholders are secured.
  6. Post-Delisting Requirements: After a successful delisting, the company shall have to adhere to certain post-delisting essentials, which can vary depending on the circumstances of the situation of delisting.
Listing of shares on the stock exchange accommodates free adaptability & prepared attractiveness to the share of the company. Rather than that, when a public company decides to convert itself to private, it needs to delist from the stock exchange and it implies that the share of that company will not be accessible for exchange on the stage given by the stock exchange.

The company decides to show itself to snatch the benefits of listing viz; lower cost of capital, more prominent investor base, liquidity in exchanging of shares, eminence, and so on. In any case, the company should be aware that the advantages of listing share the posting costs, the consistency necessities don't overburden the company and don't open them to disciplinary activities.

At first, there were 21 provincial stock exchanges ('RSE') in India 20 such RSEs closed down throughout the years because of their absence of monetary suitability, utilization of antiquated innovation & ensuing derecognition of the exchanges by SEBI. The solitary standing regional stock exchange is the Calcutta Stock Exchange ('CSE'), which is likewise at the edge of getting closed.

Different companies keep on being recorded on CSE, but the monetary reasonability of the equivalent is as yet problematic. The Delisting Regulations accommodate a simple and easy exit opportunity for these companies by essentially decreasing the period of the delisting system and smoothing out something very similar.

Also, in the case of voluntary delisting, the bar has been reduced from 5 years to 3 years and now the companies have to relist themselves in a comparatively shorter period & can raise funds for their new venture

The records of delisting regulations in India are marked by a chain of enormous milestones, reflecting the country's evolving economic and regulatory panorama. Delisting in India, initially, became a fantastically unstructured procedure that happened on stock exchanges. However, a vast turning factor happened with the establishment of the Securities and Exchange Board of India (SEBI) in 1992, which added a more prepared and based approach to securities market regulation. In 2003, SEBI brought complete guidelines for delisting, giving an

established framework for voluntary delisting by companies. those guidelines covered provisions for rate discovery through the book-building process and safeguards for minority shareholders, emphasizing transparency and equity. In 2011, modifications in takeover regulations had an effect on delisting, requiring acquirers to make an open offer if they acquire 25% or more of a company's voting rights. similarly enhancing the regulatory framework, the "SEBI (Delisting of equity shares) regulations, 2009 give particular guidelines and processes for voluntary delisting. through the years, SEBI made numerous amendments and revisions to those guidelines, adapting to changing market situations and practices.

One of the most sizeable modifications was here in 2015, with the shift to the opposite book-building procedure for price discovery, which aimed to determine a fair exit fee for shareholders. these regulatory developments have aimed toward fostering transparency, safeguarding minority shareholders' pursuits, and imparting corporations with an established framework for delisting from Indian inventory exchanges. companies and traders must live with the contemporary SEBI guidelines and rules on delisting to ensure compliance & transparency.

Why Do Companies Opt For Delisting?

There is an increase in company numbers as per the statistics given below for delisting themselves from the stock exchange. Delisting can either be voluntary or compulsory from the stock exchange or delisting related to liquidation.

Current Regime:
The procedure for voluntary delisting differs depending on whether the company chooses to delist from specific stock exchanges or all stock exchanges. The primary distinction would be providing public shareholders with an exit option when the company's securities are completely delisted from all stock exchanges. A company must meet certain qualifying conditions before beginning the delisting process; otherwise, neither the company nor the relevant stock exchanges can approve the delisting of equity shares.

These conditions are:
  • The delisting should not be the result of the company's buyback of equity shares or a preferential allotment.
  • A three-year period should have elapsed since the listing of that class of equity shares on any recognized stock exchange (only applicable in the case of delisting from all stock exchanges).
  • There are no outstanding instruments issued by the company that are convertible into the same class of equity shares that are sought to be delisted (only applicable in the case of delisting from all stock exchanges).
  • No promoter or promoter group may propose the delisting of a company's equity shares if any entity belonging to the promoter or promoter group sold equity shares of the company within six months of the date of the meeting of the board of directors (the "Board") at which the delisting proposal is sought to be approved.
  • No company may apply for, and no recognized stock exchange may permit, the delisting of convertible securities.
The steps of voluntary delisting are as follows:
  • A voluntary delisting offer from the promoters should be presented to the Board for approval. While approving the delisting proposal, the Board is required by Regulation 8(1B) of the Delisting Regulations to certify:
    1. that the listed company and the promoters are in compliance with securities laws, and
    2. that the delisting is in the best interests of the company.
  • Even before granting the above-mentioned approval, the Board must notify the stock exchanges of the proposed delisting and appoint a merchant banker to conduct due diligence under Regulation 8(1A) of the Delisting Regulations1. The merchant banker must then conduct due diligence and submit a "Merchant Banker Report" to the Board to certify that the promoter and its related entities have traded in shares in accordance with securities laws over the last two years. In the last two years, the promoter and the promoter group have not engaged in any undisclosed buy or sell transactions. that the promoter, promoter group, persons acting in concert with them, and related entities have not engaged in any transaction to facilitate the success of the delisting offer, which is in violation of Regulation 4(5) of the Delisting Regulations2, which prohibits such persons/entities from:
    1. using any device, scheme, or artifice to defraud any shareholder or other person,
    2. engage in any transaction or practice that operates as a fraud or deception upon any shareholder or other person, or
    3. engage in any act or practice that is fraudulent, deceptive, or manipulative in connection with any delisting sought or permitted, exit opportunity provided, or other acquisition of shares made under these regulations).
  • Obtain shareholder approval for delisting via postal ballot through a special resolution, with at least twice the number of votes cast in favour by public shareholders (excluding the promoter and promoter group).
  • Apply to the stock exchange for in-principle approval, accompanied by an audit report, as required by Regulation 76 of the Securities and Exchange Board of India (Depositors and Participants) Regulations, 20183, as amended, in respect of the equity shares sought to be delisted, covering the six-month period preceding the date of the application.
  • In addition to the specific requirements outlined in the Delisting Regulations, the stock exchanges have their own checklists of actions and documents that must be completed prior to granting in-principle approval, which the merchant banker typically coordinates with.
  • After receiving in-principal approval, make a public announcement containing specific information about the delisting process in accordance with Regulation 10 of the Delisting Regulations. Before making such a public announcement, the promoter is required by Regulation 11 of the Delisting Regulations4 to open an escrow account and deposit the total estimated amount of consideration calculated on the basis of the floor price and the number of equity shares outstanding with public shareholders therein.
  • Issue a letter of offer to public shareholders in accordance with Regulation 12 of the Delisting Regulations5, containing all disclosures made under the public announcement as well as any additional disclosures required by the shareholders to make an informed decision.
  • Bidding and price determination for the purchase of equity shares from public shareholders using a "reverse book-building process" of price discovery. The final offer price is determined through this process as the price at which equity shares are accepted through eligible bids bring the promoter and persons acting in concert's shareholding to 90% of the total issued equity shares ("Offer Price"). The promoter, however, is not required to accept such an Offer Price.
  • The promoter may make a counteroffer for the price in accordance with Regulation 16 of the Delisting Regulations6, which cannot be lower than the company's book value as certified by the merchant banker, as an optional step before accepting the Offer Price determined through the reverse book-building process described above.
  • The delisting offer is considered successful if:
    1. the post-offer promoter shareholding (along with persons acting in concert) is at least 90% of the issued shares and
    2. at least 25% of the public shareholders approving the delisting proposal participate in the process (this 25% requirement is waived if the acquirer and merchant banker demonstrate that the letter of offer was delivered to all shareholders via specified means).
  • In accordance with Regulation 18 of the Delisting Regulations, make a public announcement of the success or failure of the delisting offer.
  • Final application for delisting to the stock exchange, must be made within one year of the date the special resolution for delisting is adopted by the shareholders.

The Primary Market Advisory Committee (PMAC) made its recommendations on the following subject matter:
  • Alternatives to the Reverse book-building process. The PMAC suggested the Fixed Price Delisting;
  • Counter-Offer framework;
  • Determination of "Floor Price" under Delisting Regulations;
  • The Review of Reference Date for determination of the Floor Price;

Proposed Counter-Offer Framework:

The following mechanism for making a counter-offer has been proposed:
  1. Eligibility Criteria:
    7 If the discovered price is not accepted by the acquirer or if the cumulative post-offer shareholding of the acquirer fails to reach 90%, the acquirer will have the option to make a counter-offer if the bids received are higher than:
    1. the difference between the acquirer's shareholding and 75% of the total issued shares of the company; and
    2. 50% of the public shareholding
The sub-group clearly stated the need to review the current threshold for an acquirer to make a counter-offer under the Delisting Regulations. The current Delisting Regulations permit an acquirer to make the counter-offer only if after completion of the reverse book-building process, the post-offer shareholding of the acquirer and shares tendered by the shareholders reaches 90% of the total issued shares.

In case aggregate post-offer shareholding of the acquirer along with the shares of the public shareholders does not reach the threshold i.e. 90% of the total issued shares, the current provisions will not permit the acquirer to make a counter-offer.

This is a major drawback of the current Delisting norms as this may lead to a scenario where the majority of the public shareholders have tendered their shares and are in favour of delisting, but it fails because the required thresholds are not met. In this scenario, the acquirer does not have the option to make a counteroffer to the public shareholders. The acquirer will have to wait for a period of six months to make another delisting offer.

The Sub-group realized the problem that the stakeholder was facing so the sub-group proposed to lower the threshold required to make a counter-offer. A lower counter-offer threshold will give an acquirer to make a counter-offer that could potentially be accepted based on bids received by public shareholders. This will ensure successful delisting offers where the majority of the public shareholders are in favour.

The sub-group also proposed the determination of the counter-offer price based on the volume- weighted average of the bids received by the reverse book-building process. The sub-group will rely on the feedback of various stakeholders. This report for the recommendation will be transferred to the SEBI for the proposed amendments to the Delisting Regulations.

Determination Of Counter-Offer Price:

The acquirer can make a counter-offer to be the higher of:
  1. volume weighted average price ("VWAP") of the shares offered in the reverse book building process; and
  2. the initial floor price disclosed and calculated for the reverse book building process.
This will give the acquirer an opportunity to make a meaningful counter-offer with the interest of a large number of shareholders.

Proposed Review Of Floor Price:

The sub-group proposed the floor price based on certain relevant provisions in 8Regulation 8 of the Takeover Regulations for determining the floor price for delisting offers. The sub-group also proposed an additional parameter for determining the floor price mainly safeguarding the interest of the public shareholders the subgroup recommendations were mainly based on protecting the interest of the stakeholders. The additional parameter is the Adjusted Book Value method for determining the Floor price. As during the delisting offer, the company does not remain listed so it is appropriate to consider the fair market value of assets while determining the floor price.

Alternatives Of Reverse Book Building Process:

The subgroup discusses that in delisting, the acquirer should provide the existing shareholder with an exit opportunity at a fixed price under certain scenarios. This Delisting regulation safeguards the public shareholders regarding delisting offers. As delisting requires approval of shareholders through a special resolution it allows the shareholder to not offer their shares during the tendering period.9

The proposed delisting mechanism by the Sub-group will be permitted for those companies whose shares are frequently traded according to the 10Takeover code.
The delisting offer would be in the following conditions:
  1. The fixed price offered by the acquirer should not be more than the fixed price mentioned in the Delisting Regulation.
  2. The delisting offer will be successful only if the post-offer shareholding of the acquirer along with shares of public shareholders, and the price offered by the acquirer reaches 90% of the total issue shares.
The six-month cooling-off period as mentioned in the 11Delisting Regulations, any subsequent delisting attempt can be done through the fixed-price or through the reverse book building process.

Review Of The Reference Date For Determination Of The Floor Price

Regulation 8(1) of Delisting Regulations 12 requires the acquirer for initial public announcement to all stock exchanges and Regulation 10(1) of Delisting Regulations13 says that the board of directors is required to approve the delisting proposal of the acquirer not later than 21 days from the date of the initial public announcement. Regulation 20(3) of Delisting Regulations,14 states that the reference date for calculation of the floor price is the date when recognized stock exchange(s) was required to be notified of the board meeting in which the delisting proposal was considered and approved.

Further, in Regulation 37 of the Delisting Regulations,15 the board of directors are required to provide a prior intimation to the stock exchanges of the board meeting in which the delisting proposal will be considered, in accordance with Regulation 29 of the SEBI (LODR) Regulations, 2015.16

The sub-group pointed out that there could be a risk of substantial trading activity in the shares of the company between the date of the initial public announcement or the date when the prior intimation to the stock exchanges of the board meeting in which the delisting proposal will be considered, as applicable, and the date on which the stock exchanges are required to be notified of the board meeting in which the delisting proposal was considered and approved.

Accordingly, the sub-group acknowledged that the floor price should be calculated based on an "undisturbed price", i.e., the price as of a reference date when information relating to the proposed delisting offer is first disclosed to the public.

The sub-group proposed the reference date to be the date of the initial public announcement or the date on which the prior intimation is required to be given to the stock exchanges, as applicable.

It is also clarified that if the initial public announcement is made during market hours, then the date of such initial public announcement will be the reference date and if the initial public announcement is made after the market hours, then the next day will be the reference date.

Current Scenario: Reverse Book Building

As per SEBI delisting rules, the number of companies that can afford to be delisted is determined by the reverse book building ("RBB") process, which is a matter of competition. RBB is a competitive process where the delisting price is found to be the price at which the buyer's total capital reaches 90% of the company's total capital through appropriate competition. Delisting is complete if the beneficiary accepts the fee and pays all public shares with RBB's approval.

Analysis: Cessation Of Book Building Process

The Securities and Exchange Board of India ("SEBI"), after much pondering, repelled the 2009 SEBI Delisting Regulation with the SEBI Delisting Regulation in 2021. The new delisting system is basically under two courses, (I) voluntary delisting by the promoters as per the SEBI Delisting Regulation, & (ii) delisting by non-advertisers/outsider acquirers under Regulation 5A of the SEBI Takeover Regulations.17

Regardless of the repealed of the 2009 Regulation with the 2021 Regulation and the revisions to Regulation 5A of the SEBI Takeover Regulation, there is as yet a convincing need to correct the current delisting system as most delisting failed because of obsolete necessities that are as yet expected to be obligatorily followed.

In the event that we have a plan of pushing 'ease of doing business" as a country, then the equivalent can't be accomplished except if there is ease of doing business. Legislators need to see the value in that there are numerous business justifications for why a company ought to be delisted and it isn't in that frame of mind of public investors to effectively keep the company recorded, particularly when there is practically no exchanging the protections of such company or when the matter of the company no longer legitimizes its recorded. To keep up with the trustworthiness & steadiness of the Indian protection market, both delisting & listing of stocks ought to be a smooth interaction.

Replace RBB completely with a 'fixed price' regime. Since reaching the 90% threshold is a prerequisite for successful delisting, some public stakeholders may have a negative impact on the outcome of the RBB process. Business data shows that a small group of public stakeholders charge unreasonable fees, which are often rejected by buyers.

A large group of shareholders wanted to exit the company by selling their shares at a reasonable price but were aggrieved when the delisting bid failed. The fact that most delisting fails for this reason, whether under the Delisting Act 2009 or the current Delisting Regulations, is a testament to this.

The current delisting government in India is pushing most of the third-party investors & even the existing sponsors are not willing to try any delisting method. Even if the investor or promoter decides to withdraw, the price found by the RBB process is so high that the investor will not accept that it is not a fair trade. RBB is the main reason why most attempts to secede from India fail or are never attempted.

Therefore, successful delisting is rare, but should not be. Just as people have the freedom to register companies (if there are valid reasons to register), there should also be freedom to cancel & the current system should be scrapped. There's no need to stick with the old rules.

Proposed Amendment
The RBB process is now outdated and should be repealed, whether sought to be repealed under the Act or under regulation 5A of the regulation. SEBI should replace the entire RBB system with a fixed rate" system. In the first advertising campaign, the fixed price must be announced first. SEBI may issue guidelines to fix the takeover price as the minimum price applicable in IPOs under the SEBI Takeover Regulations.

The buyer should have the option to offer a higher price if he deems the job suitable. The urgent question is: How will public shareholders be protected? These questions are answered in the current system, as public shareholders will also benefit from dual protection at a fixed rate; This means that:
  1. 66.66% of the shareholders must agree to a fixed removal rate from the decision member, i.e., most pension rights. the minority's agreement and price need to be approved;
  2. Shareholders may choose to participate in the offer. Deletion occurs only when public sector bidders reach the 90% delisting threshold. This process will eliminate the views of members of the public and beneficiaries in the delisting process. This will prevent the minority shareholders from misplacing the delisting process to the detriment of a large group of shareholders seeking delisting.
Delisting rules in India have changed over the years with the establishment of the Securities and Exchange Board of India (SEBI) and the implementation of the set rules. These regulations are designed to be transparent and fair in the cancellation process, protect the rights of small and medium-sized business owners, and support the integrity of the securities market. The shift from price discovery to price recovery demand in 2015 is the most important step to strengthen the fairness of the delisting process.

Companies and investors must stay updated on SEBI's latest guidelines to ensure compliance and transparency while considering or executing delisting in India. This change in the Delisting regulations for the companies would bring the rules in India closer to more mature markets and also it will boost public companies.

SEBI has historically been reluctant to deal with the book-only rescue process. At the same time, there is a real need to ensure a conflict-free approach to cancellation by introducing equal rights of enforcement and cancellation. In some other jurisdictions, the delisting of rights is less burdensome in terms of cost. If the buyer's asking price is approved by a majority of members of the public, the buyer should be allowed.

  • SEBI (Delisting of Equity Shares) Regulations, 2021, Reg. 8(1A).
  • SEBI (Delisting of Equity Shares) Regulations, 2021, Reg. 4(5)
  • SEBI (Depositors and Participants) Regulations, 2018, Reg. 76
  • SEBI (Delisting of Equity Shares) Regulations, 2021, Reg. 11.
  • SEBI (Delisting of Equity Shares) Regulations, 2021, Reg 12.
  • SEBI (Delisting of Equity Shares) Regulations, 2021, Reg. 16.
  • Review Of Voluntary Delisting Norms Under Sebi (Delisting Of Equity Shares) Regulations, 2021 August 14, 2023 (
  • SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, Reg. 8.
  • SEBI (Delisting of Equity Shares) Regulations, 2021, Reg. 8(1).
  • SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
  • SEBI (Delisting of Equity Shares) Regulations, 2021.
  • SEBI (Delisting of Equity Shares) Regulations, 2021, Reg. 8(1).
  • SEBI (Delisting of Equity Shares) Regulations, 2021, Reg. 10(1).
  • SEBI (Delisting of Equity Shares) Regulations, 2021, Reg. 20(3).
  • SEBI (Delisting of Equity Shares) Regulations, 2021, Reg. 37.
  • SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015, Reg. 29
  • SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, Reg. 5A.

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