Thursday, March 26, 2015

SEBI Amends Delisting, Takeovers and Buyback Regulations

[The following post is contributed by Yogesh Chande, who is an Associate Partner with Economic Laws Practice, Advocates & Solicitors. Views of the author are personal.

SEBI has with effect from 24 March 2015 amended the following regulations:

(a)    SEBI (Delisting of Equity Shares) Regulations, 2009 (“Delisting Regulations”);

(b) SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Regulations”); and

(c) SEBI (Buy-Back of Securities) Regulations (“Buy-Back Regulations”).

Following are the highlights of the amendments to the Delisting Regulations:

i. A promoter or promoter group cannot propose delisting of equity shares of a company, if any entity belonging to the promoter or promoter group has sold equity shares of the company during a period of six months prior to the date of the board meeting in which the delisting proposal was approved in terms of Regulation 8(1B).

ii. Prior to granting its approval to delisting, the board of directors is obliged to:

(a) make disclosure to the recognized stock exchanges that the promoters/acquirers have proposed to delist the company;

(b) appoint a merchant banker to carry out due-diligence and make a disclosure to this effect to the recognized stock exchanges;

(c) obtain details of trading in shares of the company for a period of two years prior to the date of board meeting by top twenty five shareholders as on the date of the board meeting convened to consider the proposal for delisting, from the stock exchanges and details of off-market transactions of such shareholders for a period of two years, and furnish the information to the merchant banker for carrying out due-diligence.

iii. The board of directors of the company while approving the proposal for delisting has to certify the following after taking into account the due diligence report of the merchant banker:

(a) the company is in compliance with the applicable provisions of securities laws;

(b) the acquirer or promoter or promoter group or their related entities, are in compliance with Regulation 4(5) which broadly deals with them adopting any fraudulent or unfair or manipulative practice;

(c) the delisting is in the interest of the shareholders.

iv. The merchant banker appointed by the board of directors of the company is obliged to carry out due-diligence upon obtaining details from the board of directors of the company. The merchant banker can also call for additional details from the board of directors of the company for such longer period as may be deemed fit.

v. The report of the merchant banker should contain following details:

(a) the trading carried out by the entities belonging to acquirer or promoter or promoter group or their related entities was in compliance or not, with the applicable provisions of the securities laws; and

(b) entities belonging to acquirer or promoter or promoter group or their related entities have carried out or not, any transaction to facilitate the success of the delisting offer which is not in compliance with the provisions of Regulation 4(5).

vi. The stock exchange is now required to issue the in-principle approval for delisting within five working days, as against thirty working days.

vii. The public announcement should now be made within a period of one working day of the receipt of in-principle from stock exchange.

viii. No entity belonging to the acquirer, promoter and promoter group of the company can sell shares of the company during the period from the date of the board meeting in which the delisting proposal was approved till the completion of the delisting process.

ix. The letter of offer should be dispatched to the shareholders within two working days of the date of the public announcement, as against forty five working days.

x. The bidding period should now open within seven working days from the date of the public announcement.

xi. Tendering of shares in a delisting offer and settlement will now have to be facilitated through the stock exchange mechanism.

xii. The bidding period should remain open for a period of five working days.

xiii. The floor price for delisting will have to be now determined in terms of regulation 8 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

xiv. A delisting offer shall now be considered successful only if following conditions are satisfied:

(a) the post offer promoter shareholding (along with the persons acting in concert with the promoter) taken together with the shares accepted through eligible bids at the final price determined as per Schedule II, reaches ninety per cent of the total issued shares of that class excluding the shares which are held by a custodian and against which depository receipts have been issued overseas; and
(b) atleast twenty five per cent of the public shareholders holding shares in the demat mode as on date of the board meeting referred to in Regulation 8(1B) had participated in the Book Building Process.

This requirement [mentioned in xiv (b) above] shall not be applicable to cases where the acquirer and the merchant banker demonstrate to the stock exchanges that they have delivered the letter of offer to all the public shareholders either through registered post or speed post or courier or hand delivery with proof of delivery or through email as a text or as an attachment to email or as a notification providing electronic link or Uniform Resource Locator including a read receipt.

In case the delisting offer has been made in terms of regulation 5A of the Takeover Regulations, the threshold limit of ninety per cent for successful delisting offer will have to be calculated taking into account the post offer shareholding of the acquirer taken together with the existing shareholding, shares to be acquired which attracted the obligation to make an open offer and shares accepted through eligible bids at the final price determined as per Schedule II of the Delisting Regulations.

xv. Across the Delisting Regulations, the term “promoter” has been replaced with the term “promoter/acquirer”.

xvi. The post-offer public announcement now needs to be issued within five working days of the closure of the offer, as against eight working days.

xvii. SEBI has now been conferred with powers to relax strict enforcement of the Delisting Regulations, subject to certain conditions.

xviii. The pre-requisites for delisting a “small company” have been modified.  

xix. Certain disclosure requirements in schedule I (contents of the public announcement) have also been amended to reflect the aforesaid amendments to the Delisting Regulations.

xx. As regards schedule II, para 1 to 11 shall not be applicable in respect of book building process where settlement is carried out through stock exchange mechanism.

The notification amending the Delisting Regulations is available at - http://www.sebi.gov.in/cms/sebi_data/attachdocs/1427261684807.pdf


Following are the amendments to the Takeover Regulations:

i. Subject to the acquirer declaring his intention upfront to delist the target company at the time of making the detailed public statement, the target company can be delisted in accordance with the Delisting Regulations (“Delisting Offer”).

ii. In case of failure to delist the target company, the acquirer will have to make an announcement within two working days in respect of such failure and will have to comply with all applicable provisions of the Takeover Regulations. The acquirer will have to accordingly file the draft letter of offer with SEBI within five working days of the announcement.

iii. The shareholders who have tendered shares in the Delisting Offer will be entitled to withdraw such shares tendered, within 10 working days from the date of the announcement of failure to delist.

iv. The offer price shall stand enhanced by an amount equal to a sum determined at the rate of 10% per annum for the period between the scheduled date of payment of consideration to the shareholders and the actual date of payment of consideration to the shareholders. “Scheduled date” means the date on which the payment of consideration ought to have been made to the shareholders in terms of the timelines in the Takeover Regulations.

v. Delisting of the target company is not permitted where a competing offer has been made.

vi. The acquirer will have to facilitate tendering of shares in an open offer by the shareholders and settlement of the same, through the stock exchange mechanism.

vii. In case of a Delisting Offer, the completion of the acquisition of shares which triggered an open offer can be completed by the acquirer only after making the public announcement regarding the success of the delisting proposal.

The notification amending the Takeover Regulations is available at - http://www.sebi.gov.in/cms/sebi_data/attachdocs/1427261613075.pdf


Following is the amendment to the Buy-Back Regulations:

The acquirer or promoter will have to facilitate tendering of shares by the shareholders and settlement of the same, through the stock exchange mechanism.

The notification amending the Buy-Back Regulations is available at - http://www.sebi.gov.in/cms/sebi_data/attachdocs/1427261741142.pdf


- Yogesh Chande

1 comment:

vswami said...

REACTION (instant, primarily common sense based)

To one’s mind, the point of intriguing poser of most concern is in regard to the declared effective date of 24th March 2015. That is an odd date; which is not in sync say with the normally adopted, or to-be-most- ideally preferred one, being the beginning date of 1st April, of a financial year, for fiscal matters; such as say, for tax laws.

Further, the said effective date is the same as that of the Gazette Notification (s); as such, despite the several drastic changes, of a highly complex nature hence requiring time to get a true grip, those are expected to be/have been complied with as on and from that date. To be precise, SEBI permits no time at all, much less a reasonable time for even the amendments to be read and understood, not to speak of compliance in letter and spirit.

The subject notified amendments, prima facie of a substantial /substantive nature, are seen to be in respect of those extant regulations, the earliest of them (i.e. the last mentioned one) dating as far back as to 1998. Further, that is purported to have been made in exercise of vested powers and in pursuance of clause (f) of sub-section (2) of section 68 of the Companies Act, 2013.As has been the common and widely aired genuine complaint in industry and legal circles, the new company law itself is riddled with several areas on which the enactment is incomplete or there is either no clarity or is potent with possible controversies and legal disputes.

In short, in one’s independent perspective, even without going into the merits or otherwise of the subject amendments,- apart from the difficulties likely to be faced in the matter of compliance by companies on one side, so also of implementation, monitoring and enforcement by the authorities on the other,- the wisdom in prescribing 24th March 2015 as the effective date, is highly questionable.

For an appreciation in proper light of the viewpoint projected above, recommended to study a similar intriguing situation brought about because of an amendment of tax law with an odd effective date. Reference is to the insertion of section 234 D of the IT Act, as critically analysed in (2008) 173 TAXMAN 80.< It may be added, the enactment came to be amended vide the Explanation 2 later inserted later; but, as perceived, not wholly to serve the expected purpose as canvassed in the cited article.
In the ultimate analysis, in profound public interest, to be precise for better, if not ideal, administration, what should be of the most concern, with natural justice in focus, crying for devoted thinking is this: - Is there no hope at all for any improvement in the obtaining state of affairs, in the matter of legislation, or making rules by regulatory authorities or of the kind?!