Delisting Regulations - good news for investors
Sandeep Parekh -
Friday, June 12, 2009 2:24 PM
SEBI has come out with new delisting regulations which provide for:
a) Voluntary delisting of a listed company by a reverse book building process.
b) An easier voluntary delisting for very small and illiquid companies.
c) A very easy delisting from defunct exchanges if the same company remains listed on a working exchange.
d) Provisions for compulsory delisting for those who violate basic conditions of listing (like non disclosure of financial information) and a 10 year cooling off for the company and its promoters/ directors from raising any capital.
Those people who were expecting the reverse book building process to go away were of course unhappy. Those expecting the new regulations to introduce a 'squeeze out' of minority shareholders were even more disappointed.
I am all for the new regulations. The provision providing for voluntary delisting is fair and permits both sides of the negotiating table i.e. the buying promoters and the selling public to negotiate a price in an electronic manner. Those people who advocate a squeeze out provision - a means of forcing investors to part with their shares at some price determined by either past prices or valuation are wrong on first principles. Allowing squeeze outs is like private expropriation for private benefit. Again asserting that some investors hold out and 'unfairly' ask for 'too high a price' is also wrong on first principles - if you want something which I have, I will dictate the price depending on how badly you need to buy my property. Replace shares with a house and the principle is clear. If I have a house no one can tell me here is 50 lac (5 million) rupees, take it and get out even if the market price is only 45 lacs. In fact no one can tell me to sell the house even at twice the market price. Is holding out at twice the market price unfair? Clearly not, so is a refusal to tender at a price not unfair. In a reverse book building too, both sides of the bargain can walk away, as neither is forced to accept the prices quoted by the other. In fact there is some unfairness which is inherent even in the book building process, which is that if I as an investor refuse to sell, and most of the other shareholders sell out, I will be stuck with delisted shares (though there is a one year escape which allows investors to tender even after the book building process is over.
Even shareholder unfriendly jurisdictions like Delaware, US which allow squeeze outs (which I don't think should be allowed) go through a rigorous court approved fairness process.
I will be supporting the new regulations today (12 June) on CNBC at 10.30pm on 'the Firm'. Here is a transcript (with many typos).