[Analysis] SEBI Delisting Regulations – Key Amendments | Updates on Fixed Delisting Price Norms

The SEBI Delisting Regulations are rules established by the Securities and Exchange Board of India (SEBI) to govern how a company's equity shares are removed from stock exchanges, effectively making the company privately held. These regulations aim to protect the interests of investors by outlining fair pricing mechanisms, compliance procedures, and conditions for delisting, ensuring transparency and efficiency in the process. The regulations cover various aspects, including the determination of the exit price, reverse book-building methods, fixed-price norms, and specific frameworks for different company types, such as Investment Holding Companies (IHCs).

Table of Contents

1. Introduction
2. Introduction of ‘Fixed Delisting Price Norms’ for Efficient Delisting Process
3. Redefinition and Calculation of Floor Price under SEBI Delisting Regulations
4. Introduction of Eligibility Criteria for Counter-Offers under Delisting Regulations
5. Framework for Delisting of Investment Holding Companies (IHCs)
6. Conclusion

1. Introduction

The Securities and Exchange Board of India (SEBI) has introduced pivotal amendments to the SEBI (Delisting of Equity Shares) Regulations, 2021[1]. Aimed at enhancing the efficiency and transparency of the delisting process, these revisions include the implementation of ‘Fixed Delisting Price’ norms, the establishment of eligibility criteria for counter-offers, and the introduction of a new framework specifically for delisting Investment Holding Companies (IHCs). Here are the main highlights of these amendments:

2. Introduction of ‘Fixed Delisting Price Norms’ for Efficient Delisting Process

The Securities and Exchange Board of India (SEBI) has instituted the ‘Fixed Delisting Price’ norms under Regulation 20A to streamline the delisting process. According to these norms, an acquirer can pursue delisting through a fixed-price method only if the shares of the company are frequently traded. Moreover, if the acquirer chooses this fixed-price approach, the proposed fixed delisting price must be at least 15% higher than the floor price as determined under Regulation 19A. Additionally, the acquirer is required to accept all equity shares tendered in the delisting offer, provided that the combined post-offer shareholding of the acquirer and the shares tendered by public shareholders reaches 90% at the offered fixed delisting price. SEBI has also implemented several other amendments related to the adoption of this fixed-price process.

2.1 Definition of ‘Fixed Delisting Price’

The ‘Fixed Delisting Price’ is the predetermined price at which the acquirer proposes to buy out the equity shares from the shareholders during the delisting process via a fixed-price method.

3. Redefinition and Calculation of Floor Price under SEBI Delisting Regulations

The Delisting Regulations have historically set the ‘floor price’—the minimum price an acquirer must offer—as calculated under Regulation 8 of the Takeover Regulations, subject to periodic amendments. SEBI has introduced Regulation 19A, which updates this definition to ensure a fair pricing mechanism in the delisting process. Under the new definition, the floor price for equity shares[2] slated for delisting through either the reverse book building process or the fixed price process must be the highest of the following:

• The volume-weighted average price of acquisitions made by the acquirer and persons acting in concert over the 52 weeks preceding the reference date;
• The highest price paid or payable for any acquisition by the acquirer, with persons acting in concert, during the 26 weeks preceding the reference date;
• The adjusted book value derived from consolidated financial statements as evaluated by an independent registered valuer, except for Public Sector Undertakings;
• The volume-weighted average market price over the 60 trading days prior to the reference date on the stock exchange that records the highest trading volume, applicable only if the shares are frequently traded;
• A valuation is determined by an independent registered valuer, factoring in the book value, comparable trading multiples, and other standard valuation metrics relevant to companies within the same industry for shares that are not frequently traded.

The ‘reference date’ for calculating the floor price is designated as:

• The date of the initial public announcement by the acquirer, if made before the market closes; or
• The subsequent trading day is if the announcement occurs after the market closes or on a non-trading day.

4. Introduction of Eligibility Criteria for Counter-Offers under Delisting Regulations

Previously, the Delisting Regulations lacked specific guidelines for making counter-offers when the initial delisting price was found to be unacceptable. SEBI has addressed this by amending Regulation 22(4) to establish clear eligibility criteria for counter-offers during the delisting process via the reverse book-building mechanism. An acquirer is now permitted to make a counter-offer to public shareholders under the following conditions:

• The acquirer’s post-offer shareholding, along with the shares tendered by public shareholders, must reach at least 75%.
• A minimum of 50% of the public shareholding must be tendered.

Additionally, any counter-offer must be made within two working days following the end of the bidding period. The counter-offer price must not be below the higher of the volume-weighted average price of the shares tendered in the reverse book-building process and any indicative price previously proposed by the acquirer.

5. Framework for Delisting of Investment Holding Companies (IHCs)

The SEBI (Delisting) Regulations, 2021 specifically exempt the delisting of equity shares of Investment Holding Companies (IHCs) when conducted under a court or tribunal-approved scheme of arrangement.

5.1 Procedure for Delisting of Equity Shares of an Investment Holding Company

The procedure for delisting equity shares of an IHC is structured as follows:

• The listed IHC must distribute its equity shares (net of pro-rata liabilities) held in other listed companies to its public shareholders proportionate to their shareholdings.
• The IHC should also make cash payments (net of pro-rata liabilities) to its public shareholders in exchange for shares or investments in unlisted companies and other assets proportional to their shareholding.
• The public shareholding of the IHC must be extinguished upon the completion of the transfers and cash payments via a selective capital reduction scheme under Section 66 of the Companies Act 2013.
• Following these transactions, the company must apply to the stock exchanges for delisting.

5.2 Conditions for Delisting Equity Shares of Investment Holding Companies

The delisting of IHC equity shares must also meet the following conditions:

• At least 75% of the IHC’s fair value should be from direct investments in equity shares of other listed companies.
• Compliance with SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, specifically Regulation 11, 37, and 94, and any relevant circulars.
• Approval via e-voting requires the votes in favour of the proposal to be at least double those against it.
• Detailed disclosures on the calculation of entitlement ratios and per-share consideration in the explanatory statement for the shareholders’ meeting notice.
• Submission of a joint valuation report by two independent registered valuers to the stock exchanges for public disclosure.
• An entitlement ratio confirmation report from a chartered accountant or merchant banker.
• The IHC’s shares must have been listed for at least three years and not be under suspension at the time of applying for delisting.
• The absence of any adverse orders against the IHC or its promoters/promoter group within the last three years.
• A restriction that delisted shares cannot be relisted for a period of three years post-delisting.

6. Conclusion

The recent amendments by SEBI to the Delisting Regulations mark a substantial advancement in making the delisting process more transparent and efficient. The introduction of fixed delisting price norms brings much-needed certainty for both shareholders and acquirers, helping to minimize market disruptions. Moreover, the specialized framework tailored for delisting Investment Holding Companies (IHCs) recognizes the distinct nature of these entities and ensures that public shareholders are adequately compensated. These modifications not only streamline compliance but also reinforce shareholder protections, enhancing the overall integrity of the delisting process in India’s financial market. SEBI’s proactive measures lay a strong foundation for a more fair and transparent financial ecosystem, aligning with global best practices.

[1] Notification No. SEBI/LAD-NRO/GN/2024/206., Dated: 25.09.2024

[2] Regulation 2(1)(m) of SEBI (Delisting of Equity Shares) Regulations, 2021