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Reverse book-building process: Ideal for stakeholders, bane for promoters

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Financial Express (India) featured an article by Mr. Siddhant Mishra discussing how the fixed price method for delisting process may or may not necessarily solve the problems, given that shareholdersโ€™ participation will eventually decide success of delisting.

SEBI Chairperson, Ms. Madhabi Puri Buch, informed that SEBI will soon issue a discussion paper to review the delisting process. Data shows that over the past decade, only 98 companies have successfully delisted, while 23 companies failed to delist. Broadly, there seem to be three major obstacles that hinder the delisting process. At present, price discovery takes place via the reverse book-building process, in which shareholders cite a price at which they will sell their shares. The delisting is successful once the promoter holding crosses 90%.

The article also features views of Mr. Sumit Agrawal, Managing Partner, Regstreet Law Advisors and former SEBI officer, observed that, โ€œFirst, the 90% threshold and reverse book-building process can be manipulated by promoters, raising concerns about the fairness of the delisting. Second, certain shareholders exploit the regulatory system, holding companies to ransom by challenging the fair value and refusing to tender their shares, thus creating a regulatory challenge. Third, there is a pressing issue concerning over 2,000 illiquid or non-active companies, with the regulator facing the challenge of establishing uniform or distinct norms to facilitate their delisting,โ€

The article also featured the views of Mr. Amit Tandon, founder and managing director of proxy advisory firm Institutional Investor Advisory Services (IiAS) and Mr. Manendra Singh, Partner at Economic Laws Practice (ELP).

Readers are also welcome to send their views to Regstreet Law Advisors at info@regstreetlaw.com.

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