SEBI has notified the SEBI (Delisting of Equity Shares) Regulations, 2021 on June 10, 2021, which have repealed the erstwhile SEBI (Delisting of Equity Shares) Regulations, 2009. Some of the key changes are set out below:

1. Delisting of shares of a subsidiary company pursuant to a scheme of arrangement: Special provisions have been introduced for delisting of shares of a listed subsidiary company by the listed holding company through a court-approved scheme of arrangement, provided the listed holding company and the listed subsidiary are (a) in the ‘same line of business’ and (b) the equity shares of the listed holding company are ‘frequently traded’. As an exit consideration, the listed holding company will issue its listed equity shares to the public shareholders of the listed subsidiary. By its circular dated July 6, 2021, SEBI has clarified that both listed entities should be listed for at least 3 years and the holding-subsidiary relationship should exist for at least a period of 3 years.
2. Indicative price: The SEBI (Delisting of Equity Shares) Regulations, 2021 (‘2021 Regulations’) recognize the concept of ‘indicative price’, which is the price offered by the acquirer to the public shareholders, which is higher than the floor price. Generally, the objective of expressing an indicative price is to set a price expectation for the public shareholders. However, the indicative price plays a very significant role under the 2021 Regulations, as the quantification of the escrow amount is linked to the indicative price. Further, the acquirer is bound to complete the delisting offer at the indicative price, even if the delisting price (referred as discovered price) as per the reverse book building process is lower than the indicative price.
3. Escrow account: The 2021 Regulations require the acquirer to deposit an amount equivalent to 25% of the total consideration at the time of opening the escrow account, which should not be later than 7 working days from the date of obtaining the shareholders’ approval, and the remaining consideration prior to the release of the detailed public announcement. In case of failure of delisting offer, 99% of the amount in the escrow account is to be released within 1 working day from the date of the public announcement of the failure, and the remaining 1% is to be released post return of shares to the public shareholders or confirmation of revocation of lien marked on the shares. Under the SEBI (Delisting of Equity Shares) Regulations, 2009 (‘2009 Regulations’), the company was required to deposit the consideration amount in the escrow before making the public statement and after in principle approval from the stock exchange.
4. Initial public announcement: In order to align the provisions of the delisting regulations with the SEBI Takeover Regulations and to ensure that price sensitive information is disseminated to the public on a real time basis, the 2021 Regulations require that the acquirer first inform the stock exchanges of its intent to delist, referred as the ‘initial public announcement’, followed by a copy to the target company. Under the 2009 Regulations, the intent to delist was to be provided to the board of directors which would then inform the stock exchanges regarding the same.
5. Counter-offer: In case the delisting price as per the reverse book building process is not acceptable to the acquirer, then the acquirer is entitled to make a counter-offer to the public shareholders. However, the counter-offer is required to be not be less than the “book value” of the target company. It is interesting to note that the 2021 Regulations do not mandate the ‘book value’ to be based on audited financial numbers.
6. Committee of independent directors: The board of directors of the target company is required to constitute a committee of independent directors to provide reasoned recommendations on the delisting offer after the receipt of the detailed public statement.
7. Timelines: The 2009 Regulations did not provide specific timelines for various processes under the regulations. The 2021 Regulations now specify timelines inter alia for obtaining board approval, special resolution, opening of the escrow account, obtaining in principle approval of the stock exchange, release of shares in the event of failure of the delisting offer and payment on successful delisting.
8. Reference Date: The reference date for computing the floor price has been amended to be the date on which the stock exchange(s) was required to be notified of the board meeting in which the delisting proposal would be “considered and approved”.

Way Forward

The 2021 Regulations have been introduced to streamline and strengthen the delisting process to make it robust, efficient and investor friendly. Additionally, the introduction of timelines for the various delisting procedures is a step towards completing the delisting process in a time bound manner.