Analysis of the Delisting, SAST & Buy Back Regulations · Analysis of the Delisting, SAST & Buy...
Transcript of Analysis of the Delisting, SAST & Buy Back Regulations · Analysis of the Delisting, SAST & Buy...
Analysis of the
Delisting, SAST & Buy
Back Regulations
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
“Promoter”/“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
concert”.
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 “Acquirer”,
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
Intimation to the SEs that promoters/
acquirers have proposed to delist the
Company;
Appointment of Merchant Banker to carry out
due diligence and disclosure shall be
provided to the SEs as well;
Trading details online as well offline of top 25
shareholders in past 2 years of Board
Meeting shall be obtained & to be furnished
to the Merchant Banker to carry out the due
diligence;
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.
Conditions to be complied with, while
approving the Delisting proposal, after taking
into account the Merchant Banker’s report:
BOD to certify that the Company is in
compliance with applicable securities laws;
and
The Promoters/ acquirers have not deployed
any deceitful activity in connection with the
Delisting. The Merchant Banker shall provide
a due diligence report to the BOD.
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 days”.
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" has 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)
15(3) Deletion Parameters to be taken into
consideration were specified
in case of infrequently
traded shares.
The parameters specified have been deleted. Regulation, 2011 then in such case
there would be no pricing variations.
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
The erstwhile provisions
of Success of Offer have
been deleted.
Now, a Voluntary Offer shall be deemed to
successful only if:
The post offer promoter shareholding
together with shares accepted reaches 90%
of the total issued shares of that class; and
Atleast 25% of public shareholders holding
shares in demat form as on the date of Board
Meeting to participate in the Book Building
Process;
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, 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.
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 days”.
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 :
Paid up capital upto Rs 1
Cr and Equity shares not
having been traded in
any SE in 1 year
immediately preceding
the date of decision to
delist the Company.
OR
Upto 300 public
shareholders and the
paid-up value of the
shares held by such
A small company may be delisted from all the
SEs, without following the RBB process if:
Its Paid up capital is upto Rs 10 Cr; and
Its Net worth is upto Rs. 25 Cr; and
There is no trading of its equity shares in any
SE during preceding 1 year preceding the
initial Board Meeting; and
It has not been suspended from any
Nationwide trading terminal SE in preceding
one year.
With expanding the capital base for
being qualified as a “Small Company”,
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.
shareholders upto Rs 1
Cr
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 DPS”) 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.
Disclaimer The entire the contents of this document have been developed on the basis of relevant statutory provisions and the information available at the time of preparation.
Though the author has made utmost efforts to provide authentic information, however, assumes no responsibility for any errors which despite all precautions, may
be found herein. The material contained in this document doesn’t constitute/substitute professional advise that may be required before acting on any matter. The
author and the company expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences
of anything done or omitted by any such person in reliance upon the contents of this document.