Amendments to SEBI (Delisting of Equity Shares) Regulations, 2009
November 17, 2018
Significant amendments were made to the SEBI (Delisting of Equity Shares) Regulations) 2009 with effect from 14 November 2018 by the SEBI (Delisting of Equity Shares) (Second Amendment) Regulations 2018. The amendments have brought the definition of ‘acquirer’ in line with the Takeover Regulations 2011. Amongst other amendments, the import of the term ‘public shareholders’ has been narrowed and a counter offer process has been introduced granting promoters/acquirers the right to make a counter offer or reject the offer if the price discovered through the book building process is not acceptable to them, amongst others. SEBI Circular dated 13 March 2019, prescribes timelines for the counter offer process.
The details of the amendments are as follows:
- Definition of acquirer in line with the Takeover Regulations 2011 : The definition of “acquirer” is as provided in the Takeover Regulations 2011 and who has chosen to make an offer for delisting the company in accordance with Regulation 5A of the Takeover Regulations, as amended]. Further, any reference made to the promoter in relation to the delisting offer shall apply mutatis mutandis to an acquirer making a delisting offer.[Regulation 2 (ia) inserted]
- Definition of “public shareholders” narrowed : The definition of public shareholders excludes promoters, promoter group, persons acting in concert with them, acquirer(s) and persons acting in concert with such acquirer(s) and holders of depository receipts issued overseas against equity shares held with a custodian and such custodian holding the equity shares. [Regulation 2(1)(v)];
- PACs or their related entities subject to restrictions/conditions of delisting : The restrictions on delisting and the conditions applicable to the acquirer or promoter or promoter group or their related entities under Regulation 4(5) will also be applicable to persons acting in concert or their related entities;
- Additional certification by merchant banker : The merchant banker’s report to the board of directors under Reg. 8(1E) shall also certify that the acquirer or promoter or promoter group entity or PAC or their related entities have or not contravened the conditions for a successful delisting provided under Reg. 4(5);
- “Specified Date” in public announcement : The public announcement (PA) under Reg.10 shall specify a date being not later than one working day (earlier 30 working days) from the date of PA as the “specified date” for determining the names of shareholders to whom the Letter of Offer shall be sent. Further, the merchant banker conducting due diligence on behalf of the company may also act as manager to the delisting offer;
- Escrow account : The cash component of the escrow account may be maintained in an interest bearing account, provided that the merchant banker ensures that the funds are available at the time of making payment to shareholders. [Explanation to sub-re.(3) of Reg.11 inserted];
- Letter of offer : An eligible public shareholder may participate in the delisting offer and make bids even if he does not receive the bidding or tender offer form and such shareholder may tender shares in the manner specified by the Board.[Explanation to sub-reg.(4) of Reg.12 inserted];
- Reference date for floor price :The reference date for computing the floor price would be the date on which the recognized stock exchanges were required to be notified of the board meeting in which the delisting proposal would be considered. [Explanation to sub-reg.(2) of Reg.15 inserted];
- Right of promoter to make a counter offer or reject the offer: If the price discovered in terms of Reg.15 is not acceptable to the acquirer or the promoter, the acquirer or the promoter may make a counter offer to the public shareholders within two working days of the price discovered under regulation 15, in the manner specified by the Board from time to time: Provided that the counter offer price shall not be less than the book value of the company as certified by the merchant banker. [new sub-reg.1A inserted in Reg.16];
- Timelines for the counter offer process : The timelines for the counter offer have been set out in SEBI’s Circular dated 13 March 2019. Annexure A thereof requires that:
- The public announcement for counter offer shall also disclose the book value per share of the company;
- The Letter of offer for counter offer shall be in the abridged form containing relevant details including details of the counter offer, activity schedule, etc.
- Applicability of at least 25% public shareholder participation : The Proviso to sub-reg.(1)(b) of Reg. 17 provides that the requirement of at least 25% of public shareholder participation in the Book Building Process for the offer to be deemed successful does not apply to cases where the acquirer or the merchant banker are able to demonstrate that they have delivered letters of offer to all the shareholders either by registered post or speed post or courier or hand delivery with proof of delivery or through email as text, including read receipt. Explanation I has now been inserted to this Proviso that, if the acquirer or merchant banker send letters of offer by registered or speed post through India Post they shall provide a detailed account regarding the status of delivery of the letters of offer (whether delivered or not) sent through India Post so as to be considered as a deemed compliance of the said Proviso. If the acquirer or the merchant banker is unable to deliver the letter of offer to certain shareholders by modes other than speed post or registered post of India Post, efforts should be made to deliver the letters of offer to them by speed post or registered post through 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 be considered as deemed compliance with the aforesaid proviso;
- Post offer promoter shareholding in case of counter offer : If a counter offer has been made by the acquirer or promoter in accordance with Reg. 16(1A), an offer made under chapter III shall be deemed to be successful only if the post offer promoter shareholding (along with the persons acting in concert with the promoter) taken together with the shares accepted at the counter offer price, reaches ninety per cent of the total issued shares of that class, excluding the shares which are held by a custodian and against which depository receipts have been issued overseas. [sub- reg.(2) inserted in Reg.17 ];
- Payment to public shareholders in case of compulsory delisting : The promoters of the company shall acquire the delisted equity shares from the public shareholders by paying them the value determined by the valuer within three months of the date of delisting from the recognized stock exchange. [sub-Reg (3) of Reg.23 amended];
- Consequences of compulsory delisting : In case of companies whose fair value is positive – (a) such a company and the depositories shall not effect transfer, by way of sale, pledge, etc., any of the equity shares held by the promoters/promoter group and the corporate benefits like dividend, rights, bonus shares, split, etc. shall be frozen for all the equity shares held by the promoters/ promoter group, till the promoters of such company provide an exit option to the public shareholders in compliance with Reg. 23(3); and (b) the promoters and whole-time directors of the compulsorily delisted company shall also not be eligible to become directors of any listed company till the exit option is provided. [sub-reg. (2) to Reg. 24 inserted];
- Small companies : Small companies may be delisted on fulfillment of the requirements under Reg.8 and additional conditions under sub-reg.(3) of Reg. 27. One such additional condition is that at least 90% of such public shareholders give their positive consent in writing. This condition has been amended to provide that the public shareholders, irrespective of their numbers, holding 90% or more of the public shareholding give their consent in writing.
SAM & Co comment
SEBI has brought much needed clarity with respect to the counter offer process that can be initiated by a promoter who does not agree with the price discovered by reverse book building. The timelines provide for the schedule to be followed right from commencement of the counter offer till the counter offer is brought to its logical conclusion (i.e., success or failure of counter offer). Further while setting out the timelines, SEBI has also provided a framework which spells out the relevant particulars of information that must be set out in the documents by which counter offer is made.