Market regulator Securities and Exchange Board of India (Sebi) is re-evaluating the disclosures made by ICICI Securities in connection with the proposed delisting of the company, said people with direct knowledge of the matter. The market regulator has initiated a probe into the matter and has also summoned ICICI Securities executives in December to seek further explanations on the delisting process.
The disclosures in question pertain to information provided by the company to avail an exemption from the Reverse Book Building (RBB) mechanism. Sebi is also evaluating if the company followed fair process in valuing shares, the people cited above added.
To be sure, the probe is unlikely to impact the delisting transaction, which has already received a nod from the National Company Law Tribunal (NCLT) despite objections from minority investors. Also, the scheme has managed to garner shareholders’ approval as mandated in the law. However, if any discrepancies are found, Sebi can penalise the company and its executives under various securities market laws.
Courts, including NCLT Mumbai and Bombay High Court, have so far given a clean chit to Sebi on the matter.
Emails sent to Sebi, ICICI Bank and ICICI Securities remained unanswered.
“Sebi is looking into the disclosures made by ICICI Securities under regulation 37(1) of Delisting rules which allows Sebi to exempt certain delisting from RBB provided the subsidiary and parent company are in the same line of business,” said a person cited above. “The regulator is also looking into the valuation conducted by the company and whether minority investors were compensated fairly with ICICI Bank shares," the person added.
In June 2023, ICICI Securities had announced its plans to delist from stock exchanges and merge with its parent ICICI Bank. ICICI Securities investors were to get 67 shares of ICICI Bank against every 100 hundred shares of ICICI securities they owned. The ratio was arrived upon based on a valuation conducted by two registered valuers: PWC Business Consulting Services and EY Merchant Banking Services, disclosures showed.
The regulator is also looking into disclosures made by the company while seeking special exemption. It is also examining the valuation conducted by ICICI Securities for determining the share swap ratio with ICICI Bank, the people cited above added.
The development assumes significance as several minority investors, including a mutual fund, have moved various judicial forums, including Bombay High Court, National Company Law Tribunals (NCLTs) in Mumbai and Ahmedabad, alleging that ICICI Securities was accorded special treatment by Sebi.
The key complaint of these investors has been about an exemption given by Sebi to ICICI Securities from having to follow the RBB mechanism. Minority investors have been demanding the disclosure of the exemption letter given by Sebi to ICICI Securities. They have also been raising questions about the valuation methodology and claim they should have got a better deal.
The 2021 Amendment
At the heart of the matter is an amendment made by Sebi to delisting rules in 2021.
Until then, all companies looking to delist were required to follow the RBB route, where the delisting price would be decided based on the bids received from the investors. In the past, minority investors have derailed several delisting issues by seeking steep exit prices from companies. This prompted Sebi to tweak its delisting rules.
One of the key amendments made by Sebi in the new rules was by way of introducing a special provision Section 37(1) of delisting rules which allowed a company to be provided an exemption from RBB rules in delisting, provided the parent and the subsidiary are in the same line of business.
ICICI Securities had applied for delisting under this new rule. While ICICI is a pure lender, ICICI Securities is into broking and other market intermediary services and hence minority investors are not convinced that both companies are in same line of business. Hence, they claim ICICI Securities should never have received exemption from RBB.
“ICICI made an application to Sebi seeking exemption and it received the exemption hence went ahead with the delisting as per rules. If Sebi had not provided the exemption, ICICI Securities would have considered the normal RBB route,” said another person cited above.
So far, various judicial forums have not intervened in the delisting proceedings. Infact, on August 21, NCLT Mumbai approved the scheme of arrangement between ICICI and ICICI Bank despite opposition from select minority shareholders.
Role of ICICI Bank
In March 2024, ICICI Bank drew criticism from market participants when the bank’s executives made calls to ICICI Securities shareholders asking them to vote in favor of delisting. Some of the employees even asked the investors to send screenshots of their votes. On June 6, Sebi issued a warning letter to ICICI Bank where the regulator said this was inappropriate. However, minority investors have been complaining that Sebi let ICICI Bank off lightly with a warning letter and without initiating any regulatory proceedings.
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