Delisting norms to empower small shareholders: Kotak Invst

Delisting may soon be a whole new game! Market regulator Sebi has proposed guidelines that would alter the pricing mechanism, settlement and a 10% public shareholding as the trigger for delisting. Executive Director of Kotak Investment Banking, TV Raghunath gives his thoughts on Sebi's fundamental changes to the process.

Raghunath believes that reference date for delisting would remove speculation action on the particular stock. According to him, "It is a guidance based on which the buyer has to make an offer and shareholders decide whether to exit or not. Further improvement on that is speculative activity in anticipation of the shareholder resolution has also been removed because the reference date for the price on the Sebi formula is the date prior to which the board notice is given to the stock exchanges."

Quizzed if this would lead to slightly lower prices, aside of the 25% above floor price provision since the two days of speculation would be knocked out, he clarifies, "Not really, finally it will boil down to the economic balance between the acquirer and the selling shareholder body. So the acquirer has to price as aggressively as it would motivate 90th percentile shareholder to participate because if it does not reach that level of success, the delisting offer fails."

Raghunath informs that the Sebi has proposed a floor price guidance. "So he has to price himself reasonably aggressively. He has to price at the minimum of that. Above that, the acquirer’s economic call comes in. So I don’t think it will not dampen the offer perspective at all."

Raghunath feels that this would reduce the chances of cartelisation by some of the majority shareholders and would give more power to smaller shareholders.

He feels that there is finally a transparent mechanism for any transaction, where the buyer and the seller need to find out the right price, since a shareholder will not sell unless he gets what he thinks is the right price; and a buyer needs to judge what is that right price, which will motivate the most reluctant shareholder to sell.