Sebi may ease buy-back norms to make delisting easier for promoters

Promoters wanting to delist their companies will get some respite with the Securities and Exchange Board of India (Sebi) planning to ease the minimum number of shares they have to acquire to delist the company from the stock exchanges.

SEBI guidelines issued in June 2009 required promoters to own more than 90 per cent of the shares in order to delist a company from the stock exchanges.

The SEBI norms require that promoter-holding in a company should cross 90 per cent or the promoter should acquire more than 50 per cent of the outstanding shares of the company through the reverse book-building route.

The promoter shareholding has to reach the higher of these two requirements if a company is to delist.

SEBI proposes to do away with the second requirement to simplify the delisting process.

Under the existing norms, a company with 89 per cent promoter holding has to raise it by 5.5 per cent to 94.5 per cent to fulfil both criteria. If this criteria is done away with, the company will have to raise promoter holding by just about 1 per cent to reach 90 per cent shareholding.

The existing norm have handicapped some of the bigger firms from delisting from bourses even though several small firms have managed to delist in the last two years.

Several MNCs which wanted to delist have ended up selling stake instead. Firms that failed in their delisting attempt included Oracle Financial Services Software, Timken India and Novartis India.

MNCs such as Saint-Gobain Sekurit India and Ricoh India were also unsuccessful in their delisting attempt.

The process of delisting itself is a tedious one as the company must get approval of two-thirds of the shareholders through a postal ballet and establish an acceptable price through reverse book-building besides increasing the holding to the required threshold.

Also, the concentration of shares among a large number of shareholders will make delisting even more difficult as shareholders typically exact a steep exit price from the promoters.