Analysis of the Delisting, SAST & Buy Back Analysis of the Delisting, SAST & Buy Back...

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Transcript of Analysis of the Delisting, SAST & Buy Back Analysis of the Delisting, SAST & Buy Back...

  • 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 onl