What is driving Sebi to review the reverse book-building process?

Reverse book building may be seen by companies as open to abuse, shareholders have valued it as a way to get the best value possible out of their shares.

Delisting regulations are being reviewed because there are operators who try to corner stocks towards the corporate event, and try to “extract” more than the fair value of the stock from the company promoters, according to Madhabi Puri Buch.

The Securities and Exchange Board of India (Sebi) chairperson reiterated her earlier statement that the regulator does not want any ‘Abhimanyus’ in the market, meaning entities who feel trapped insider the market—that is, companies who cannot delist and investors who cannot exit. Therefore, they are reviewing the delisting regulations and the trading plan for perpetual insiders, she added, in a press meet.

Also read: SEBI may permit delisting via fixed price; consultation paper likely by December

Buch explained the problems companies face in delisting through reverse book-building process. She said, the companies’ concern is that certain constituents in the market, in anticipation of the delisting, acquire shares in a concerted bid such that their holding crosses 10 percent. Then, when the companies are looking to acquire more than 90 percent required for delisting, prices are jacked up to a “very very high level which is unsustainable for the entity (the company)”.

“The committee has deliberated on how to solve this problem,” she added.

In reverse book building, shareholders offer a price at which they are willing to sell their shares to the promoters or large shareholders.

While reverse book building may be seen by companies as open to abuse, shareholders have valued it as a way to get the best value possible out of their shares.

When asked why the regulator does not simply “go after” these operators instead of denying shareholders the chance to get the best value for their holding, she said that these operators are running a business. “It is a business model of these people… we can’t go after them unless it is prohibited by law,” said Buch.

On the need for the revision of the norms, she said, “Sometimes there is a difference between getting your fair value and extracting more value… I think we need to balance out the requirement of both (the companies and the shareholders).”

Also read: SEBI plans to experiment with 'shift' in regulatory architecture: Chairperson Madhabi Buch

She said that the consultation paper should be out before December.

“Industry has been telling that they have found problems there… very early we will be taking this forward to the advisory committee. We will say that if you have a requirement for delisting, you can also have a fixed price. If that does not work, then you can try the reverse book building. If that fails, then we will give you time again, may be three years, two years, one year… depending on the discussions we have with the markets and with the advisory committees. That will go a long way in helping companies who don’t want to be listed,” said Ashwani Bhatia, a whole-time member of Sebi.