July 18, 2011

" Delisting Tough Now " - Satyakam Mishra

High asking rate makes delisting tough for MNCs

MUMBAI: Multinational companies are increasingly finding it difficult to delist their Indian subsidiaries from bourses in the absence of positive response from minority shareholders.

The inability to pass delisting resolution with a majority support and the high-valuation expectations of investors have adversely affected the prospects of some of the MNCs that made delisting attempts in the recent past.

Kennametal India and AstraZeneca Pharma are two major examples where the delisting resolutions were not passed by shareholders.

The shareholders of two other companies, BOC and Goodyear India , did not tender the required number of shares in the respective open offers, while promoters of Bosch Chasis did not accept the price discovered through the reverse book-building system.

Delisting regulations of 2009 have made delisting more difficult as it is necessary to receive shareholders' approval through the postal ballot method, according to Pavan Kumar Vijay, managing director of law firm Corporate Professionals. The delisting proposal is passed as special resolution. The resolution is passed only if two-thirds of the votes are cast in favour of the proposal. Only public shareholders can cast vote.

"The postal ballot method makes sure that public shareholders have a say in crucial decisions relating to delisting and they should not be left at the promoters' whims and fancies," said Mr Vijay.

The new delisting norms are in the interest of minority shareholders, feels RS Loona, managing partner, Alliance Corporate Lawyers and former executive director (legal), Sebi. In the past, many companies raised funds from the market which fuelled growth and helped promoters prosper, before they eventually decided to delist, said Mr Loona. Sometimes, valuation expectations start building up even before the delisting process begins.

For instance, Saint-Gobain Sekurit has received shareholders' approval for delisting proposal with majority through postal ballot whose result was announced on July 4. However, the stock had appreciated 10% in seven days ahead of the result. At Friday's close of Rs 45, the company is valued at a high price to earning (ratio of 41 times based on trailing four-quarter earnings.

A company in India can be delisted if the offer results in the promoter holding exceeding 90%, or the promoter acquiring at least 50% of the public holding, whichever is higher. The price is determined by investors in what is called reverse book-building where they indicate prices at which they are willing to sell. Minority shareholders have been expecting high valuation also because of delisting of a few MNCs at an attractive premium in the recent past, feels Vishal Jajoo, senior research analyst at Nirmal Bang Securities .

"The confidence of minority shareholders is boosted after global companies such as Atlas Copco paid a hefty premium to buy out them," he said. According to Anil Jindal, director of Jindal Securities , a Delhi-based investor in some MNCs, "postal ballot system has its drawback also as by the time shareholders receive the form, most of them have already sold off their holdings due to huge spurt in the price, after the delisting announcement, and are still eligible to vote. But all those who have purchased shares after the announcement are not eligible to participate in voting."

Satyakam Mishra


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