SEBI Brings Fixed Price Framework For Delisting Process

Market regulator Securities and Exchange Board of India has introduced fixed price framework to its delisting regulations for promoters to take their companies private. This move is aimed at smoother transitions for companies while ensuring fair treatment for minority shareholders.

Under the newly notified changes promoters are to propose a fixed delisting price that must be at least 15% above a newly defined floor price. This floor price will be calculated based on various valuation metrics. These include including the volume-weighted average price paid or payable by the acquirer over the previous 52 weeks, the highest price paid in the last 26 weeks, and the adjusted book value as determined by an independent valuer.

Additionally, for frequently traded shares, the floor price will consider the average market price over the 60 trading days prior to the reference date.

The currently prevalent method of delisting is the reverse book building process. It entails shareholders bidding the price at which they want to sell their shares back to the company. After the bidding period, the company sets a buyback price based on the highest bids. If accepted, shareholders sell at that price; otherwise, they keep their shares.

In contrast, the fixed price framework involves the company offering a specific price for shares, with no bidding. The main difference is that reverse book building lets shareholders influence the price through their bids, while the fixed price method is a straightforward offer from the company.

Moreover, the new regulations impose stricter requirements on acquirers. They must now establish an interest-bearing escrow account and deposit 25% of the total consideration within seven working days of securing shareholder approval. This measure is designed to enhance the financial security of the delisting process.

Additionally, in an attempt to encourage transparency, the regulations mandate e-voting by shareholders, ensuring that a significant majority of votes are in favor of any delisting proposal.