Through an amendment dated March 24, 2015, SEBI has changed several provisions of the SEBI (Delisting of Equity Shares) Regulations, 2009, the regulations that govern the delisting of public listed companies in India. The following are the significant amendments:

Process for approving delisting: The board of the company is now required to appoint a merchant banker immediately after it informs the stock exchanges of its intention to delist. The primary role of the merchant banker, after carrying out its due-diligence exercise, is to certify that the promoter/ promoter group entities have been in compliance with the applicable provisions of securities law during all their trading in the shares of the company and that they have not carried out any fraudulent transaction in order to facilitate the success of the delisting offer. The board of the company, based on the report of the merchant banker, may then approve the delisting.

Threshold for successful delisting: The Delisting Regulations specify certain thresholds relating to the shareholding of the promoter post offer, i.e., after acceptance of shares through eligible bids for the delisting to be considered successful. The earlier regulations specified that the threshold would be the higher of: (a) 90% of the total issued shares; or (b) the aggregate of the pre offer promoter shareholding and 50% of the offer size. The amendment simplifies the calculation by omitting the second threshold. An additional condition has been included to determine the success of delisting – a minimum of 25% of the public shareholders need to have participated in the book building process. If this is not satisfied, it is sufficient for the promoter and the merchant banker to demonstrate that the letter of offer has been delivered to all public shareholders.

Final offer price: The final offer price is to be determined through the book building process as per Schedule II of the Delisting Regulations. All bids at the final offer price and those below the offer price are required to be accepted. The earlier regulations stated that the offer price would be the price at which the maximum number of equity shares is tendered by the public shareholders. However, the amendment now states that the offer price shall be the price at which shares accepted through eligible bids take the promoter shareholding to 90%.

Relaxations in certain cases: The amendment also provides relaxations on the applicability of the Delisting Regulations in certain circumstances. Firstly, small companies whose shares have not been traded for a period of one year may undertake delisting without adhering to the onerous obligations of providing an exit opportunity to their public shareholders. The amendment has now expanded the definition of small companies by increasing the paid-up capital requirement from Rs. 1 cr. (10 million) to Rs. 10 cr. (100 million) with maximum net worth of Rs. 25 cr. (250 million). Secondly, the amendment has added a new provision to the Delisting Regulations whereby SEBI has been empowered to grant relaxation from strict enforcement of the provisions by recording the reasons for the same in writing. The promoter of the company must file an application seeking such relaxation and the same will be decided by SEBI after hearing the applicant.

Restriction on sale by promoters and Timelines: The amendment imposes certain trading restrictions on the promoter/ promoter group entities. In addition, the amendment has tried to shrink the timeline for the delisting process.

Stock exchange mechanism: The amendment now requires the acquirer or promoter to facilitate tendering of shares by the shareholders and settlement of the same through the stock exchange mechanism. The procedure for this mechanism has been specified in SEBI’s Circular dated April 13, 2015. The new mechanism envisions a separate ‘acquisition window’ wherein selling public shareholders may place their bids through their stock brokers during the delisting process.

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Date:September 28, 2015