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Insight on Voluntary Delisting of Equity Shares

  1. Why Companies Opt for Voluntary Delisting?
  2. The Company may opt for Voluntary delisting for various reasons, which may include the following:
    1. Promoter wants complete control of the company,

    2. Strategic buyout and new investor would like to have control

    3. The market value does not reflect the true intrinsic value of the Company

    4. Corporate Restructuring

    5. Unsatisfactory fundraising in the stock market

  3. Law applicable?
  4. Chapter III, IV and Schedule II of the SEBI (Delisting of Equity Shares) Regulations, 2009 ( Delisting Regulations) deal with the Voluntary delisting.
  5. What is the Procedure to be followed?
  6. Step#1: Convene a Board meeting, then pass a resolution for approval of delisting of Equity Shares.

    Note: The date on which the intimation has been sent to the Stock exchange of the aforementioned Board meeting, shall be taken as the date for deciding the minimum floor price, for buy back of the shares from the public ( Regulation 15 of the Delisting Regulations)

    Step#2: Approval of shareholders need to be obtained through postal ballot, by passing special resolution.

    Note: In addition to the special resolution, one more condition need to be satisfied, that is the votes cast by the public shareholders in favor of the proposal amount to at least two times the number of votes cast by public shareholders against it.

    Step#3: Make an application to the Stock exchange for in principal approval together with the reconciliation of share capital audit report related to the equity shares sought to be delisted. {Regulation 55A of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996}

    Note: According to the Delisting Regulations, stock exchange is supposed to dispose of the application, within 30 days of the receipt of the application. Further the stock exchange is required to ensure the following compliance by the Company prior to granting the approval for delisting:
    1. Resolution by the shareholders for delisting has been passed through postal ballot as specified by the Delisting Regulations.

    2. Resolution of all investor grievances.

    3. Payment of the listing fees to the stock exchanges.

    4. Compliance with all the requirements of the listing agreement.

    5. Pending litigations against the company (in particularly litigations related to the stock market).

    Thus, before making the application for in principal approval, the Company needs to address all the above issues to avoid any delays.

    Step#4: After receiving the in principal approval appoint an Independent Merchant Banker.

    Step#5: Open Escrow account and deposit the estimated amount of consideration for buyback of shares calculated on the basis of floor price and number of shares outstanding with the public shareholders.

    Note:
    1. Floor Price: Floor price is the minimum price that shall be paid to the public shareholders. The same shall be calculated as under:
      1. where the equity shares are frequently traded in all the recognized stock Exchanges where they are listed, the average of the weekly high and low of the closing prices of the equity shares of the company during the twenty six weeks or two weeks preceding the date on which the recognized stock exchanges were notified of the board meeting in which the delisting proposal was considered, whichever is higher, as quoted on the recognized stock exchange where the equity shares of the company are most frequently traded;

      2. Where the equity shares of the company are infrequently traded in all the recognized stock exchanges where they are listed, the floor price determined in accordance following factors:

        - the highest price paid by the promoter for acquisitions, if any, of equity shares of the class sought to be delisted, including by way of allotment in a public or rights issue or preferential allotment, during the twenty six weeks period prior to the date on which the recognized stock exchanges were notified of the board meeting in which the delisting proposal was considered and after that date unto the date of the public announcement; and,

        - other parameters including return on net worth, book value of the shares of the company, earning per share price earning multiple vis-à-vis the industry average.

    2. Deposit in to Escrow account can be made either in the Form of cash or Bank guarantee.

    Step#6: Make a public announcement (PA) in at least one English national daily with wide circulation, one Hindi national daily with wide circulation and one regional language newspaper of the region where the concerned recognized stock exchange is located.

    Note:

    PA need to consist of the contents specified in the Schedule-I of the Delisting Regulations.

    Further the PA shall specify the date, which is not later than 30 days from the date of the PA as record date, for the purpose of ascertaining the shareholders, to whom letter of offer shall be sent.

    Step#7: Send the Letter of offer to the public shareholders of equity shares, not later than forty five working days from the date of the public announcement, so as to reach them at least five working days before the opening of the bidding period.

    Step #8: The offer shall be opened for the purpose of receiving bidding forms. The date of opening of the offer shall not be later than fifty five working days from the date of the public announcement.

    Step #9: During the offer if the physical shares are tendered by the shareholders, then the same shall be sent to the company or RTA for verification purpose, if found genuine, they shall be returned to the Merchant banker, who shall keep them in his custody and transfer them to the promoter after deciding the final price and making of payment to the shareholders by the promoters.

    Note: The final price shall be determined based on the Book-building process as per schedule-II of these regulations.

    Step#10: After the completion of the offer, final price shall be the price quoted by the majority of the shareholders. If the promoters agree the final price, then they make the public announcement announcing the acceptance of final price and also the success of offer with in 8 days of the closure of the offer.

    Note:
    1. The offer is deemed be succeeded if :

      When the shareholding of the promoter (along with PAC's) combined with the shares accepted through eligible bids reaches higher of

      • 90% of the total shares issued of that class (excluding shares held by custodians and against which depository receipts have been issued overseas) or

      • Aggregate percentage of pre offer promoter shareholding(along with PAC's) and 50% of offer size.

      In case the offer is not successful (i.e. not able to meet the above requirements) then the promoters need to inform the same through PA with in 8 days from the date of closure of offer.

    2. The promoter is not bound to accept the final price arrived as per the book-building process, in case he is not satisfied by the final price, he has the right to reject the offer and inform the same through PA with in 8 days from the date of closure of offer.

    Step#11:In case the final price is accepted by the promoters, then he need to transfer the additional fund (the difference of amount per share between the floor price and final price multiplied by the number of shares outstanding), if required, to the Escrow account and there on make the payment with in 10 days from the date of closure of the Offer.

    Step#12: After completion of the payment to the shareholders, then a final application shall be made to the Stock exchanges (which shall be with in one year from the date of passing of Special resolution) requesting the delisting of shares.

    Then the Stock exchange shall dispose the application, after verifying the compliance requirements.

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