SEBI (Delisting of Equity Shares) Regulations, 2021 – All you need to Know

SEBI (Delisting of Equity Shares) Regulations, 2021 – All you need to Know

Executive Summary:

• • • The Securities Exchange Board of India (‘SEBI’) has issued the SEBI (Delisting of Equity Shares) Regulations, 2021 aiming to make the existing Delisting Regulations robust, efficient, transparent and investor friendly,
    • The article highlights the comparative key changes brought by SEBI (Delisting of Equity Shares) Regulations, 2021 as against SEBI (Delisting of Equity Shares) Regulations, 2009; and embedded benefits of Regulations 2021, as reflected in key changes.

What is Delisting?

Often we come across and hear about companies delisting their shares. Delisting of shares happens when companies aren’t willing to offer their shares for trading anymore. In simple words, listing of securities means admission of securities for dealings on a recognized stock exchange. It enables free transferability and easy marketability of shares. Delisting of securities means removal of company’s shares from listing on recognized stock exchange either voluntary or involuntary. Thus the act of delisting a security means that it is no longer available for trading on the stock market.

Need for New Regulation:

It was observed by the Securities and Exchange Board of India (SEBI) that there are a large number of entities who are burdened with listing costs and compliance requirements. Such companies had however chosen to continue remain listed owing to the cumbersome process of delisting under the existing laws. Thus the SEBI in its recent enactment of SEBI (Delisting of Equity Shares) Regulations, 2021, repealing the existing SEBI (Delisting of Equity Shares) Regulations, 2009, has refined and streamlined the delisting process, thus making it more robust, efficient, and transparent and investor friendly (hereinafter referred to as “Regulations 2021” or “New regulations”).

Overview of Key Changes

• Compliance with the regulations:
  The lines between the Acquirer and company were slightly grey in 2009 Regulations. The 2021 Regulations makes it clear that the acquirer and persons acting in concert with it are responsible for compliance with the regulations. The process commences with the announcement by the acquirer of its intention to delist as opposed to a board resolution of the company. The role of the company is merely that of facilitator. The 2021 regulations also expressly stipulate that the expenses for the delisting offer should be borne by the acquirer and not the company. Further the shareholders have the additional right to inspect the documents referred in the letter of offer and right to create lien in favor of Manager to the Offer as opposed to depositing the shares. The new regulations provide clarity on the method of calculation of book value.
• Disclosure by Acquirer:
  The Delisting Regulations of 2021 allow the acquirer to first notify the Stock Exchanges of their intention to delist the Company, and then to notify the Company at its Registered Office within one working day of such notification. This is known as the Initial Public Announcement.
• Time Bound mechanism:
  New regulations of 2021 specify the timelines for the entire process, making it less cumbersome and time bound. Revised timelines are provided for passing of Board resolution, Special resolution, Escrow Account, in principle approval, Final application to the stock exchanges after successful delisting, Announcement of outcome of Reverse Book Building.
• Escrow Account:
  The Regulations 2021 make it obligatory on the acquirer to open an escrow account even before applying for in-principle approval & deposit 25% of the total consideration (as opposed to 100% of the total consideration in the erstwhile regulations) and balance 75% is required to be deposited before making the detailed public announcement. The provision benefits the acquirer with financial stability.
• Indicative Price:
  The new regulations have defined Indicative Price as being a price higher than the floor price. As there was no prescribed indicative price limit in the regulations 2009, the companies used to quote the price higher than the floor price in order to attract more shareholders.
• Success Threshold:
  Under new regulations, for a successful delisting offer, the requirement that at least 25% of the public shareholders, holding shares in the demat mode, should have participated in the book building process has been done away with.
• Withdrawal of Offer:
  The 2021 Regulations make it clear that the Acquirer is bound to accept the equity shares tendered in the delisting offer, if the discovered price is equal to the floor price or the indicative price, if any, offered by the acquirer. The indicative price is binding on the acquirer and he is obliged to acquire the shares at that price, if the delisting threshold is met, even if the discovered price is lower.
• Payment on Successful Delisting:
  Under the 2009 Regulations, payment was done within 10 working days from closure of offer; whereas under new regulations where discovered price is same as floor price, the payment is made through secondary market settlement mechanism and where discovered price is higher than floor price, the payment is made within 5 working days from the date of making the payment to the public shareholders.
• Depository Receipts:
  Under the new regulations, the listed company is required to delist its entire depository receipts issued overseas and change them into the underlying equity shares in the home jurisdiction, after termination of the depository receipts programme, within one year of such delisting.
• Release of Shares in Case of Failure of Offer:
  New regulations provide that, where failure is due to –
  a) 90% of the shares are not tendered: shares will be released on the date of disclosure of the outcome of the RBB process
  b) Discovered price being rejected by acquirer: release will be done on the date of making public announcement for the failure of the delisting.
  Under the erstwhile regulations, the general provision provided for release of shares within 10 working days from the closure of the offer, where bids were not accepted.
• Role of Manager to the offer:
  The 2021 regulation has expanded the role of manager to the offer as well. It includes various obligations which include his responsibility towards protection of the interest of the remaining shareholders who have not exited, pursuant to the delisting offer.
• Special provisions:
  a) Special provisions regarding investor’s growth platform have been added to the new regulation.
  b) Special Provisions have also been made regarding delisting of subsidiary company through the scheme of arrangement when the listed holding and subsidiary company both in the same line of business.

Conclusion

The study of global market reveals the fact that India is very less successive in the process of ‘Delisting of Companies’. The new regulations certainly address some core aspects while still underlining incremental improvements by filling some of the gaps in the previous regulations.

Introduction of new provisions will ease the procedure of delisting of companies. The impact of the changes brought in by the new delisting Regulations on the success rate of the delisting process is yet to be seen.

Regards,
Legal Team

Proind Business Solutions Private Limited
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