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

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Analysis of the Delisting, SAST & Buy Back Regulations

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

Page 1: 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

Analysis of the

Delisting, SAST & Buy

Back Regulations

Page 2: 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

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:

Page 3: 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

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.

Page 4: 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

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.

Page 5: 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

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.

Page 6: 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

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.

Page 7: 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

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)

Page 8: 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

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.

Page 9: 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

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

Page 10: 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

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.

Page 11: 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

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.

Page 12: 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

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

Page 13: 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

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.