Indian Firms Opting For Delisting Route As Promoters Seek Freedom To Rejig Businesses

Anil Agarwal’s Vedanta Ltd was the first off the block since the coronavirus pandemic hit India’s economy. Agarwal has offered to purchase the 49% stake held by public shareholders in the company.

Given the sharp fall in the value of their stocks, more companies could look at the option of delisting their shares in the coming months, capital market advisers said. Adani Power Ltd and Diageo Plc-owned United Spirits Ltd are also considering going private, according to media reports.

“We are seeing growing interest in delisting. While it is surely a play of depressed valuations, it could also be a strategic move to reward shareholders and have better control over the company,” said Yash Ashar, partner and head of capital markets at law firm Cyril Amarchand Mangaldas.

He added that the recent changes made by regulator Securities and Exchange Board of India (Sebi) to delisting norms, including allowing the acquirer to make a counter offer if the price discovered under the reverse book building process is not acceptable and a clarification on the reference date for computing the floor price, have helped ease the delisting process.

“While certain issues such as requirement of 90% shareholding of the promoter and promoter group post delisting—higher than global requirements—and clarity on counter offer mechanism remain, we expect there will be more activity on the delisting front in the coming months, till the companies see significant recovery in market capitalization,” added Ashar.

To be sure, while depressed valuations might be an attractive reason for the promoter to take the company private, the move might not be the best from the point of view of minority shareholders.

Vedanta’s move to buy shares from public shareholders at an indicative price of ₹87.5 has not been received positively as shareholders feel that the price offered is not reflective of the true value of the company, Mint reported on 21 May. The final price of delisting will be determined by a reverse book-building process.

“On pricing, we don’t like companies to be opportunistic about delisting,” said Amit Tandon, chief executive of proxy advisory firm Institutional Investor Advisory Services.

Tandon said that the market can be divided into two sets of companies, those that are important for the markets that they stay listed and those that are better off delisted.

“Then you have the broader issue of the integrity of the market. Here you begin by classifying companies into two sets. The first set of companies are those who you want to continue to remain listed and the second is the set with sharp practices and unreliable accounts. We need to find a way to encourage the first set to continue to remain listed and the second set of companies to delist,” said Tandon.

Under this framework, even if a firm is being opportunistic but has questionable governance practices, you may be indifferent if they delist, he said.

The article was first published on livemint.com