The Indian securities market regulator, the Securities Exchange Board of India (SEBI) has overhauled the regulatory regime for voluntary delisting of companies in India. Delisting of Indian companies is governed by the SEBI (Delisting of Equity Shares) Regulations, 2009 (Delisting Regulations). While SEBI had initially announced amendments to these regulations on 19 November 2014, these were notified only on 24 March 2015. SEBI’s intent behind these amendments has been two - fold i.e., to make the cumbersome delisting process easier for companies and simultaneously align it with the investors’ interests.
Regulation 17 of Delisting Regulations which enlists the conditions for success of a delisting offer was amended to include an additional condition which required participation by minimum 25% of public shareholders (holding shares in the dematerialised form on the date of the board meeting approving the relevant delisting) (Relevant Public Shareholders). This additional requirement would not be applicable if the acquirer and merchant banker were able to demonstrate that they have delivered the letter of offer to all the public shareholders with proof of delivery.
Given the increase in price post intimation of board’s decision regarding delisting, some shareholders exit in the stock market at a higher price. Further, certain public shareholders are untraceable and this is evident from non-encashment of dividend or correspondence to shareholders’ returns undelivered, etc. Therefore, it was extremely challenging to meet the condition regarding participation by Relevant Public Shareholders. Further, it is common for listed companies in India to have shareholders whose communication address and details may not be updated and such shareholders may not be traceable. Therefore, it is even more challenging to ensure actual delivery to each and every public shareholder.
The issue regarding what would constitute delivery under the proviso to Regulation 17(b) was contested in the delisting offer in the case of Fulford (India) Limited. Subsequent to filing of an appeal with the Securities Appellate Tribunal against bona fide attempts not being accepted by the stock exchange as deemed compliance of Regulation 17(b) and making an application to SEBI for a specific exemption, SEBI issued a clarification to the stock exchanges clarifying as follows:
- If the acquirer or the Merchant Banker sends the letter of offer to all the shareholders by registered post or speed post through India Post and is able to provide a detailed account regarding the status of delivery of the letters of offer (whether delivered or not) sent through India Post, the same would be considered as a deemed compliance with the proviso to regulation 17(b) of the Delisting Regulations.
- If the Acquirer and Merchant Banker are unable to deliver the letter of offer to all the shareholders by modes other than speed post or registered post of India Post, efforts should be made by them to deliver the letter of offer by speed post or registered post of India Post. In that case, a detailed account regarding the status of delivery of letter of offer (whether delivered or not) provided from India Post would also be considered as deemed compliance with the proviso to regulation 17(b) of the Delisting Regulations.
This above position has been clarified in the Frequently Asked Questions (FAQ) recently issued by SEBI. The FAQs can be accessed here.
The ambiguity regarding what constituted delivery for the purpose of Regulation 17(b) was a major concern for successful completion of a delisting offer.
We expect that the practical ramifications of the clarifications above, will go a long way to make voluntary delisting by the listed companies, a success, which would have otherwise been almost impossible.
This clarification by SEBI also clearly indicates the proactive approach adopted by them to achieve their primary objective of making the delisting process less cumbersome for both the company and investors.