Analysis of the Delisting, SAST & Buy Back Regulations
SEBI on March 24, 2015 issued overhauling amendments to the SEBI (Delisting of Equity Shares) Regulation, 2009 (the Delisting Regulations) along with SEBI (Substantial Acquisition of Shares and Takeover) Regulation, 2011 (SAST/ Takeover Regulations) and SEBI (Buy Back of Securities) Regulation, 1998 (the Buyback Regulations).
Taking into account the slower pace of Delisting offers in India, SEBI has revamped the norms that reduce the time taken for completing the process. It has also introduced a new concept of Delisting Offers into the SAST Regulations, 2011, which aim to provide a new opportunity to the Acquirer to even go in for delisting, by giving a Takeover Open Offer.
A major common amendment by the Board in all the three Regulations is that a Stock Exchange mechanism will be provided for facilitating the tendering of shares by the shareholders and settlement of the same by the Stock Exchanges having Nationwide Trading Terminal. This will relieve the shareholders from the levy of heavy Capital Gains Tax as compared to a nominal STT.
Main highlights of the Amendment to SEBI (Delisting of Equity Shares) Regulation, 2009
- SEBI in its Board Meeting had already primarily decided upon the various amendments it proposed to promulgate in the Delisting Regulations.
- Now, SEBI vide its amendment dated March 24, 2015 has inserted various new clauses as well as deleted certain Regulations and amended certain provisions.
- An analysis of the amendments in the Delisting Regulations & their impact have been provided in the given table:
| Regulation No. | New Insertion/ Amendment/ Deletion | Erstwhile provision | New Insertion / Deletion | Impact |
| 2(1)(iva) | New Insertion | N.A | Definition of “Promoter Group†has been inserted which provides that it shall have the same meaning as assigned in SEBI (ICDR) Regulations, 2009. | Under the erstwhile Delisting Regulations, while the words “Promoterâ€/“PAC†were defined, but “Promoter Group†was not there. |
| 2(2),4(5), 10(1),10(4), 10(5),10(6), 11(1),11(2), 12(1),14(2), 16(1),16(2) (a),(b),(c), and 18 |
Amendment | In all these Regulations, the obligation to comply with the provisions of the Regulations was restricted only to the “promoter†or their “person acting in concertâ€. | Now, wherever the word “promoter†or “person acting in concert†was specified, the word “Acquirer†has also been inserted. | With the insertion of the word “Acquirerâ€, the Delisting Regulations will have to be complied with by the person who is acquiring the shares and not just the Promoters/ PAC. |
| 4(1A) | New Insertion | N.A | A new pre-condition has been introduced which provides that no equity shares should have been sold by the promoter or promoter group in past six months prior to the date of Board Meeting which in the proposal of delisting of equity shares of the Company is approved. | It was observed by SEBI that in some cases, in order to ensure success of delisting offer, the Promoters were selling their shares to outsiders. Now, the Promoters would not be able to sell their shares on one hand and on the other, to announce delisting. There has to be a mandatory gap of atleast 6 months between any sale transaction by the Promoters and the Board Meeting, to consider delisting. However, this pre condition of no sale during preceding 6 months has not been cast on the Acquirer, as defined under SAST Regulations. |
| 8(1A), (1B), (1C),(1D), (1E), | New Insertions | Some additional conditions and procedures have been specified for delisting where exit opportunity is required. | In addition to the erstwhile conditions, new conditions has been mandated: Conditions required to be complied prior to Board approval
Conditions to be complied with, while approving the Delisting proposal, after taking into account the Merchant Banker’s report:
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SEBI, vide these new provisions has made stricter compliance of all the conditions as specified and higher significance has been given to Merchant Banker to carry out due diligence and provide a report. This insertion is purely with the intent to safeguard the interest of shareholders of the Company and to keep a tab on any defrauding/ deceitful activities of the Promoters/ Acquirers. |
| 8(3) | Amendment | An In Principle application was needed to be disposed of by SEs within a period of 30 working days. | The duration to dispose of the application for in-principal approval has been reduced to 5 working days instead to 30 working days. | The timeline has been reduced to provide pace to the delisting offers so that they can be successfully completed in shorter span of time and there are lesser chances of any speculation/ price manipulative activities during the interim period. |
| 10(1) | Amendment | There was no specific time frame for giving the Public Announcement (PA). | Now, the PA has to be given within “one working day†of the receipt of the In Principle Approval. | Under the erstwhile Regulations, the Promoters used to obtain the In Principle Approvals and then would come out with the PA as per their own planning schedule. Now, the detailed PA has to be made within “one working day†of the In Principle Approval. |
| 10(7) | New Insertion | N.A | A new condition has been imposed, barring the entities belonging to the promoter/ acquirer to sell the shares from the date of Board Meeting upto the completion of delisting process. | This condition has been introduced to provide fair opportunity to the investors so that no promoter/ acquirer can sell off its shares during the pendency of the delisting process. It can thus be inferred that no Promoters can sell any of their shares from 6 months prior to the Board Meeting till the completion of the delisting process. |
| 12(1) | Amendment/ Deletion |
Under the erstwhile Regulations, the promoters were to despatch the letter of offer to the public shareholders within 45 working days from the date of PA, so as to reach them at least 5 working days before the opening of the bidding period. | The duration to despatch the letter of offer to the public shareholders of equity shares has been reduced to “2 working days instead to 45 working daysâ€.
Further, the words “so as to reach them at least five working days before the opening of the bidding period†have been deleted. |
The timelines have been reduced further to provide pace to the delisting offer so that it can be successfully completed in shorter span of time. |
| 13(1) | Amendment | Under the erstwhile Regulations, the date of opening of the offer was mandated to be not later than “55 working days†from the date of the PA. | Now, the date of opening of the offer shall not be later than “7 working days†from the date of the PA. | The timeline has been reduced to provide pace to the delisting offer so that it can be successfully completed in shorter span of time. |
| 13 (1A) | Insertion | N.A | The Acquirer/ the Promoter to facilitate tendering of shares through the SE mechanism. | Earlier, many a times, the shareholders were not tendering their shares, for the reason of CG tax, now, the shares tendered under the Delisting process would be subject to STT only and no CG tax. |
| 13(2) | Deletion | Under the erstwhile Regulations, the Delisting Offer was to remain open for “minimum 3 working days and maximum 5 working days”. | Now, the words “minimum period of 3 working days and a maximum” have been omitted. | The Delisting Offer period shall remain open for a fixed time span of “5 working days†only. |
| 15(2) | Amendment | Earlier the pricing criteria were specified separately for “frequently†as well as “infrequently†traded shares. | Now, the pricing shall be determined as per “Regulation 8 of SEBI (SAST) Regulations, 2011†| The intent for this new insertion is to bring the pricing factors at par with the SEBI (SAST) Regulations, 2011, so that if a “Delisting Offer†made under Regulation 5A of SEBI (SAST) Regulation, 2011 then in such case there would be no pricing variations. |
| 15(3) | Deletion | Parameters to be taken into consideration were specified in case of infrequently traded shares. | The parameters specified have been deleted. | |
| 16 (2) (d) | Deletion | Wherein at the time of opening of bidding period the public shareholding was less than 25%, then in such cases promoters were to ensure that within a period of 6 months from the date of closure of bidding, the public shareholding was brought upto the level of 25% of the total paid up capital. | The provision has been deleted. | Companies have to be in compliance with Minimum Public Shareholding requirements, before initiating the delisting process. |
| 17 | Deletion & Insertion |
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Now, a Voluntary Offer shall be deemed to successful only if:
However, this requirement of 25% tendering will not be applicable if the Merchant Banker along with the acquirer prove to the SE that Letter of Offer was delivered to all the public Shareholders. |
The conditions pertaining to Success of Offer have been made more stringent. Now, in addition to the requisite of Post Offer Promoter holding reaching 90%, it has to be made sure that atleast 25% of the Demat public shareholders, tender their shares.However, SEBI realized that to tender or not to tender is the prerogative of the shareholders, so they have provided a breather as well and it has been provided that if the Merchant Banker & the acquirer can prove to the SE that the Letter of Offer was delivered to all the public shareholders, this condition of 25% tendering would not be applicable. |
| 18 | Amendment | Under the erstwhile Regulations, the promoter and the merchant banker were to make a PA for Success/ Failure of the offer, within 8 working days†of closure of the offer. | Now, this duration of “8 working days†has been reduced to “5 working daysâ€. | The timeline has been reduced to provide pace to the delisting offer so that it can be successfully completed in shorter span of time. |
| Proviso to 19(2)(a) | New Insertion | As per Regulation 19(2)(a), in case of failure of offer, the shares tendered in the offer were needed to be returned to the public shareholders, tendering the same. | Now, a new proviso has been inserted specifying that the acquirer is not required to return the shares if the offer is made pursuant to Regulation 5A of SEBI (SAST) Regulation, 2011. | This proviso has been inserted taking into consideration the provisions of newly inserted Regulation 5A of SAST Regulations, which specifies that if the acquirer intends to delist the company and the Delisting Offer fails, then the acquirer shall not be required to return the tendered shares, but to comply with the provisions of SEBI (SAST) Regulations, 2011, within the mandated time lines. |
| 25A | New Insertion | N.A | Now, any Promoter or Acquirer can make an Application to SEBI to obtain a relaxation/ exemption from the strict enforcement of the Delisting Regulations with a fees of Rs. 50,000/-. SEBI may after taking into consideration all the facts and circumstances of the case may grant the exemption. | This Exemption clause was a much demanded requirement. This will give the companies/ promoters a breather dose by applying for exemption from strict compliance of all the provisions of the Regulations. |
| 27(1) | Amendment | A small company was defined as a Company with :
OR
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A small company may be delisted from all the SEs, without following the RBB process if:
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With expanding the capital base for being qualified as a “Small Companyâ€, SEBI has surely widened the coverage of Small Companies, but at the same time, the restriction of no trading/ no suspension during preceding 1 year, would make it slightly complicated for the companies to fall within the ambit of a Small Company.If any company fails to meet any of the criterion, it will have to follow the RBB process. |
| 31(2) | New Insertion | N.A | Any promoter or acquirer who has initiated the delisting process under Regulations prior to amendment and if price has not been determined, then the price shall be determined under these amended Regulations. | This provision is inserted to provide clarity to the cases which are presently in process to delist their securities. |
Main highlights of the amendment to SEBI (Substantial Acquisition of Shares and Takeovers) Regulation, 2011
- A new Regulation, Regulation 5A has been inserted into the SAST Regulations.
- As per this provision, a new opportunity has been provided to the “Acquirer†that now wherever an acquirer intends to acquire the shares or voting rights in any Target Company, he shall specify his intention that whether he proposes to acquire shares as a normal Takeover Open Offer or he intends to delist the equity shares of the Target Company.
- Subsequent to the disclosure of his intent to delist, in the Detailed Public Statement (DPS), the acquirer shall proceed with the “Delisting Offer†under SEBI (Delisting of Equity Shares) Regulation, 2009 and there will be no requirement to comply with the provisions of SEBI (SAST) Regulations, 2011.
- However, in case the Delisting offer made under Regulation 5A of SAST Regulations fails due to any of the reasons specified below:
- On account of non receipt of prior approval of shareholders;
- On account of non receipt minimum number of shares which shall be acquired as per Regulation 17 of SEBI (Delisting of Equity Shares) Regulation, 2009; or
- On account of rejection of price by the Acquirer suo moto as computed in Book Building process.
Then in such a case, the Acquirer is required to make an “Announcement†within “two working days†from such failure and subsequently shall comply with all the provisions of SEBI (SAST) Regulations, 2011.
- Further, with regard to this Takeover Offer, the offer price shall be enhanced by interest of 10% p.a.for a period of between “scheduled date for payment of consideration†as computed as per SEBI (SAST) Regulations, 2011 and “actual date for payment of consideration†to the shareholders.
- In case of any Competing offer (“offer made by any other person within 15 working days of the date of DPSâ€) made under Regulation 20 of SEBI (SAST) Regulation, 2011, then:
- No delisting offer shall be made by the Acquirer;
- No interest shall be paid by the Acquirer to the shareholders for the delay caused due to competing offer made;
- Subsequent to the competing offer, Acquirer shall make an “Announcement†within “two working days†of the date of PA and then subsequently proceed with the provisions of SEBI (SAST) Regulations, 2011;
- In case of shareholders who tendered their shares in the delisting offer, will get an opportunity to withdraw such shares tendered “within 10 working days†from the date announcement. Moreover, shareholders who have not tendered shares in the delisting offer, may tender their shares in Takeover Open Offer subsequently.
- Subsequent to the issuance of public announcement specifying the success of delisting offer made, the acquirer may complete the acquisition of shares which initially attracted the obligation to make a Takeover open offer.
OUR VIEW POINT:
SEBI has made overhauling changes in the Delisting Regulations and according amendments in the Takeover Regulations as well. Under the Delisting Regulations, on one side they have curtailed the time lines by almost half from the ones given under the erstwhile Regulations, and on the other hand, have made Merchant Banker’s Due Diligence, as to the trading by the Promoters/ Acquirers/ Promoter group entities a mandatory pre requisite for Delisting. Now, even a new person/ non promoter can become the acquirer, provided he declares his intent of delisting initially itself and he complies with the provisions of Delisting Regulations as well as the Takeover Regulations. Provisions as to Success of Offer have also been amended and the much needed Exemption clause has been inserted.
However, in our view, the Regulator has skipped to address two critical aspects in these amendments:
- Under the present circumstances, when most of the Regional Stock Exchanges have been derecognized or are in the process of being derecognized by SEBI and there are many a companies listed exclusively on such derecognized Stock Exchanges. As per the prevalent Circulars, such companies will be shifted to a Dissemination Board and will be considered unlisted. From the Investors’ interest perspective, the process to be followed by the Promoters, for providing exit to the public shareholders of such exclusively listed companies, is needed to be inserted into the Regulations. This process may be a lenient one as compared to the process applicable for the nationwide Exchange companies, but there should surely be some provisions in regard thereto.
- Another clarification that was needed is in respect of Success of Small Companies’ delisting, in compliance of Regulation 27(3)(d) of the Regulations. The said Regulation mandates for obtaining written positive consent of atleast 90% of the public shareholders. However, in a judgement in the year 2011, Hon’ble SAT mandated that a company would be eligible for delisting under the Small Companies route, if the public shareholders, irrespective of their numbers, holding 90% or more of the public shareholding give their positive consent to delisting. Thus, there still remains that dilemma as to whether its 90% of the headcount of public shareholders or 90% of value of holding, for a Small Company delisting to be successful.