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    DELISTING

    Strategic Financial Management

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    DELISTING - MEANING

    The term delisting of securities meanspermanent removal of securities of alisted company from a stock exchange.

    As a consequence of delisting, the securities of that company would no longer be traded atthat stock exchange.

    Source : http://www.sebi.gov.in/Index.jsp?contentDisp=SubSection&sec_id=5&sub_sec_id=5

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    The difference betweenVoluntary delisting and Compulsory delisting

    Compulsory delisting refers to permanent removalof securities of a listed company from a stock exchange as a penalizing measure at the behest

    of the stock exchange for not makingsubmissions/comply with various requirementsset out in the Listing agreement (Clause 49)within the time frames prescribed.

    In voluntary delisting, a listed company decideson its own to permanently remove itssecurities from a stock exchange.

    Source : http://www.sebi.gov.in/Index.jsp?contentDisp=SubSection&sec_id=5&sub_sec_id=5

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    THE EXIT OPPORTUNITY available for INVESTORSin case a company gets delisted?

    SEBI (Delisting of Securities) Guidelines, 2003 provide an exit mechanism , whereby the exit pricefor voluntary delisting of securities is determinedby the promoter of the concerned company whichdesires to get delisted, in accordance to book building process .

    The offer price has a floor price, which is average of 26 weeks average of traded price quoted on the

    stock exchange where the shares of the company aremost frequently traded preceding 26 weeks fromthe date public announcement is made.

    There is no ceiling on the maximum price.

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    INFREQUENTLY TRADED SECURITIES

    the offer price is as per Regulation 20 (5) of SEBI (Substantial Acquisition andTakeover) Regulations.

    For this purpose, infrequently traded securitiesis determined in the manner as provided in

    Regulation 20 (5) of SEBI (SubstantialAcquisition and Takeover) Regulations.

    Source : http://www.sebi.gov.in/Index.jsp?contentDisp=SubSection&sec_id=5&sub_sec_id=5

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    ABOUT REGULATIONS

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    MULTIPLE LISTING e.g., on RSEs

    Does a company listed at BSE/NSE have toprovide exit offer to shareholders in case itdelists from stock exchanges other thanBSE and NSE?

    No, the company does not have to provide exitoffer to shareholders because it continues to

    be listed on the BSE / NSE which havenationwide reach and shareholders can exitany time they decide to so by way of sellingshares in NSE/ BSE.

    Source : http://www.sebi.gov.in/Index.jsp?contentDisp=SubSection&sec_id=5&sub_sec_id=5

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    SEBI Guidelines (2003) APPLY TO

    Voluntary delisting being sought by the promoters

    of a company. Any acquisition of shares of the company ( either

    by a promoter or by any other person ) or scheme or arrangement, by whatever namereferred to, consequent to which the publicshareholding falls below the minimum limitspecified in the listing conditions or listingagreement that may result in delisting of securities;

    Promoters of the companies who voluntarily seek to delist their securities from all or some of the

    stock exchanges;.

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    SEBI Guidelines (2003) APPLY TO

    Cases where a person in control of the

    management is seeking to consolidate hisholdings in a company , in a manner whichwould result in the public shareholding in thecompany falling below the limit specified inthe listing conditions or in the listingagreement that may have the effect of company being delisted ;

    Companies which may be compulsorilydelisted by the stock exchanges;

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    SEBI Guidelines (2003) VOLUNTARY

    Provided that the securities of the company have beenlisted for a minimum period of 3 years on any stock exchange .

    Provided further that an exit opportunity has been givento the investors for the purpose of which an exit priceshall be determined in accordance with the book building process described in clauses 7-10 and 13and 14 of these guidelines.

    An exit opportunity need not be given in cases wheresecurities continue to be listed in a stock exchangehaving nation wide trading terminals.

    Explanation : For the purposes of these guidelines, stock exchange having nationwide trading terminals meansthe Stock Exchange, Mumbai, the National Stock Exchange and any other stock exchange, which may bespecified by the Board.

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    SEBI Guidelines (2003) Procedure for voluntary delisting

    Obtain the prior approval of shareholders of

    the company by a special resolution passed atits general meeting; Make a public announcement in the manner

    provided in these Guidelines. Make an application to the delisting exchange in

    the form specified by the exchange, annexingtherewith a copy of the special resolution

    passed under sub-clause (a); and; (d) complywith such other additional conditions as may

    be specified by the concerned stock exchanges from where securities are to bedelisted.

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    SEBI Guidelines (2003) Procedure for voluntary delisting

    The stock exchange(s) shall provide the

    infrastructure facility for display of theprice at the terminals of the trading membersto enable the investors to access the price onthe screen to bring transparency to thedelisting process.

    In the event of securities being delisted, theacquirer shall allow a further period of 6

    months for any of the remainingshareholders to tender securities at the same price;

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    SEBI Guidelines (2003) Procedure for voluntary delisting

    The stock exchanges shall monitor the possibility of price manipulation and keep under special watch thesecurities for which announcement for delisting has been made.

    To ascertain the genuineness of physical securities if tendered and to avoid the bad delivery, Registrar andTransfer Agent shall co-operate with the ClearingHouse / Clearing Corporation to determine thequality of the papers upfront.

    The paid up share capital shall not be extinguished as inthe case of buyback of securities;

    In case of partly paid-up securities, the price determined by the book building process shall be applicable to theextent the call has been made and paid.

    The amount of consideration for the tendered andaccepted securities shall be settled in cash;

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    SEBI Guidelines (2003) DELISTING OF ONE OR ANY CLASS OF SECURITIES

    A company may delist one or all of its class of securities subject to the provisions of thisclause.

    If the equity shares of a company are delisted,the fixed income securities may continue toremain listed on the stock exchange.

    A company which has a convertible instrumentoutstanding, it shall not be permitted to delistits equity shares till the exercise of theconversion options.

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    SEBI Guidelines (2003) REINSTATEMENT OF DELISTED SECURITIES

    Reinstatement of delisted securities should be permitted by the stock exchanges with acooling period of 2 years.

    In other words, relisting of securities should beallowed only after 2 years of delisting of thesecurities.

    It would be based on the respective

    norms/criteria for listing at the time of makingthe application for listing and the applicationwill be initially scrutinized by the CentralListing Authority.

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    SEBI Guidelines (2003)

    PROCEDURE The decision on delisting should be taken by a panel

    to be constituted by the Exchange comprising thefollowing :

    a. Two directors/officers of the Exchange (onedirector to be a public representative) b. One representative of the investorsc. One representative from the Central Government

    (Department of Company Affairs)/ RegionalDirector / Registrar of Companies

    d. Executive Director / Secretary of the Exchange

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    Avery India delisting plan fails

    Enam Securities , manager to the open offer for 21.56 per cent residual minority shareholding in Avery India,following an overseas change of promoters in thecompany , has declared that the collective responsewas short of the target.

    Enam, on behalf of A V Acquisition Co.3 , an affiliate of the buy-out firm European Capital SA, which took over Averys UK parent , Avery Weigh-TronixHoldings, has informed BSE today that some 4.85 per cent of the voting rights (4,76,394 shares) could beacquired only.

    This implied that the plan has fallen through. Thetargeted and eventual delisting proposal has alsofailed in the process, at least for the time being.

    Source : The Hindu Business Line, August 22, 2007

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    Avery India delisting plan fails

    The acquirer had revised the price upwards from Rs55 per share to Rs 80 per share.

    However, the resistance from the smallshareholders to the revised price saw a less thanenough response.

    LIC, United India Insurance and CD Finvest ,three major among the non-promoter holders,reportedly have not responded to the offer .

    The stock today closed at Rs 65.60, down 2.5 per

    cent. Interestingly, the stock had reached its year high atRs 82 on May 17, 2007.

    Source : The Hindu Business Line, August 22, 2007

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    SEBI backs different method for pricing of delisted shares

    Aiming to provide a fair share price to retail investors of delisting companies,

    Proposed an alternative mechanism for determining the priceto be offered by promoters to shareholders.

    Revised draft regulations - Sebi suggested doing away withthe current book-building route for determining the price atwhich shareholders of delisting companies tender shares.

    Such a practice leads to cauterization (destroy damaged or infected tissue, with a heated instrument, a laser, an electriccurrent or a caustic substance) and gives disproportionatepower to those holding majority shares.

    According to the proposed norms, the offer price would notbe less than floor price plus 25% premium or fair priceplus 25% premium, whichever is higher.

    Source : Times of India, November 24, 2006

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    SEBI backs different method for pricing of delisted shares

    Floor price would be determined by high andlow of closing prices of securities and other parameters like return on net worth, while fairprice would be ascertained by an

    accredited credit rating agency. Promoters would not be allowed to delistcompanies from bourses if promoters(together with persons in concert) stake is not

    likely to increase above 90% even aftertendering of shares.

    Source : Times of India, November 24, 2006

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    SEBI backs different method for pricing of delisted shares

    In case a company has minimum publicshareholding of 10% under the listingagreement, promoters stake has to go upabove 96% after tendering of shares.

    The draft suggests converting norms for delisting into regulations to give them legalsanctions.

    Delisting from bourses would not be allowed if the stake of promoters is not likely to increaseabove 90% even after tendering of shares.

    Source : Times of India, November 24, 2006

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    MNCs delist in India on REVELATION FEARSby Indrajit Basu

    They came, they saw and they made money. And when theyrealized that their perception among investors was not whatit used to be, they started slipping out of the limelight bydelisting the shares of their Indian subsidiaries.

    Quietly, MNCs in which the parental holding is 60 percentand above , are seeking to delist.

    A concerned industry lobby, the FICCI , is trying toascertain the reasons behind the exodus of multinationals. The ruling BJP believes that MNCs have blatantly

    disregarded Indian laws and the interests of minorityinvestors by delisting from India.

    P. N. Vijay (Delhi-based investment banker and conveyorof the BJPs central economic cell) MNCs [in India]show scant respect for Indian laws. We should deal firmlywith multinationals that try to act funny with us.

    Source : http://www.atimes.com/atimes/South_Asia/EF25Df03.html

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    MNCs delist in India on REVELATION FEARSby Indrajit Basu (JUNE 25, 2003)

    A number of MNCs have converted their public listedIndian companies into wholly-owned subsidiaries byacquiring the shares of retail and institutional investorsthrough the open offer or buyback route over the pastfew years.

    SEBI - Nearly 75 percent of the MNCs still operatingand listed on the exchanges are eager to opt out asthey are no longer under the compulsions that forcedthem to get listed in the first place.

    Moreover, over 50 MNCs have delisted their subsidiariesfrom Indian stock exchanges over the past three years,out which as many as 35 made open offers for delisting in the 12 months ending in January, 2003.

    Source : http://www.atimes.com/atimes/South_Asia/EF25Df03.html

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    MNCs Delist

    FICCI Secretary General Amit Mitra We are studyingthis matter for both its pros and cons.

    Muted Opposition from investor interest groups initially.

    It is a matter of complete control of the company. If acompany is 100 percent owned, its balance sheetremains unavailable to public knowledge, and so dotheir strategies .

    - Analyst John Band of Zoom Cortex, an advisor toMNCs.

    Source : http://www.atimes.com/atimes/South_Asia/EF25Df03.html

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    MNCs Viewpoint

    What has prompted a fear of remaining listed is the

    constant scrutiny to which these companies areregularly subjected by Indian listing laws of dissemination of information in a transparent manner.

    These laws, like any other country, mandate that a listedcompany provide all information to its investors , andthat this then becomes available to anyone withinthe public domain .

    Investors can question the decisions of MNCs at

    annual shareholder meetings , as can stakeholderssuch as financial institutions and big creditors. In contrast, a privately-held, or delisted company, can

    easily escape such public scrutiny .

    Source : http://www.atimes.com/atimes/South_Asia/EF25Df03.html

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    SEBI backs different method for pricing of delisted shares

    According to the Indian daily, Business standard,"Promoters are now seeking voluntary delisting fromregional stock exchanges to save on listing costs.Regional bourses are becoming redundant because of technological disadvantages. Almost 99.9 percent of trading volumes are recorded on the two major exchanges, the Bombay Stock Exchange [BSE] andthe National Stock Exchange [NSE]. With mostregional exchanges reporting minuscule volumes,

    promoters prefer to pay listing fees to only the two

    most liquid exchanges instead of paying annualcharges to all of them."

    Source : http://www.atimes.com/atimes/South_Asia/EF25Df03.html

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    SEBI backs different method for pricing of delisted shares

    But skeptics like P N Vijay feel that MNCs operating inIndia are desperate to hide.

    They want to conceal . The reason is, during the recentdifficult times that the Indian economy has faced,many companies had to take controversial decisionsthat general investors may not now like,.

    For instance, a company may need to sack people, or introduce new products where theres a risk of failure,or may take a strategic decision to incur losses to graba higher market share.

    Source : http://www.atimes.com/atimes/South_Asia/EF25Df03.html

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    PUBLIC SCRUTINY OF LISTED MNCs on Indian bourses

    COKE Example

    The Indian subsidiary has an accumulated loss of over $300 million, owingto its obsession with acquiring market share. It has only recently startedclaiming that it is earning operating profits.

    Coke India has been fighting a mandatory listing for the past two years,mainly on the ground its bottom line, smeared in red, will make itimpossible for the company to attract fair valuations when it goes public.

    It has been negotiating with its bottlers on sensitive issues like proposedinvestments to modernize bottling units, pricing mechanisms andenforcing its processes and systems on them, and fears that a publiclisting at this stage will bare its strategies to its competitors, (read Pepsi).

    Coke India has managed to get a reprieve, though, from the government,which has now agreed to allow it to divest its parents stake to just ahandful of Indian investors that have a stake in the company.

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    Reckitt Benckiser came under SCANNER

    Drug company, Reckitt Benckiser, underwent a drasticchange in its structure after a global M&A deal.

    Subsequently, all strategies were tweaked, especially indeveloping markets.

    To cite just one instance, in August 2001, it tinkered with

    pricing and the formula of one of its largest-sellingOTC drugs in India, Disprin. It tried to extend the Disprin brand into the cardio-

    vascular segment to earn more revenue, and hence

    higher profits. But that turned out to be a controversialdecision. The move was strongly opposed by analysts, investors

    and even within the medical profession.

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    MNCs vs. Local Investor

    Those against MNCs delisting argue that whilesome of their fears may be real, the truequestion is the spirit behind delisting (or theopposition to dilution).

    The same fears work in the global environment,

    but one rarely does one hear of MNCs delistingfrom exchanges in their respective homecountries. So, why do it in India?

    - A disgruntled investor (For over fivedecades and has investments in MNC stocks)

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    NO BODY HAS A SAY IN INDIA (against MNCs)?

    In India, delisting is easy, small investors have littlesay in the decision and cannot oppose it, and themarket regulator is weak and lacks teeth.

    Imagine the way its Securities and ExchangeCommission and US investors will react to anydelisting move.

    They will make sure that a company undergoesintensive scrutiny before such a decision iscleared.

    In contrast, no one really cares in India.

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    PRITHVI HALDEA, MD of PRIME Database

    While the reason for MNCs to delist could be justified, itis a fact that they have given minority investors a bad

    deal. These MNCs raised money from small investors whenthey came to India.

    They grew big on these very investors money. Most of these companies have a large capital base and a

    large investor base. But the buy-back prices being offered to small investors

    are unfair since the offers [to acquire from the market]are made on a six-month average price.

    A formula could have been evolved based on say a two tothree year price average, along with the peak price.

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    CII and CII DG Tarun Das

    MNCs should be allowed to exit freely toadhere to the countrys spirit of liberalization.

    It is natural as regulatory reforms take place.Given that sectoral caps on foreign direct

    investments have been removed from mostof the Indian industry sectors, it is notsurprising that delistings are taking place.

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    Profitable unlisted PSUs to head to market:LISTING: WHY TEN PER CENT?

    DISINVESTMENT MOVE Unlisted companies with a positive net worth going to the stock market. Announced by Home Minister P Chidambaram after a meeting of the Cabinet

    Committee on Economic Affairs, opens the doors for around 50 companiesto get listed, prominent among them being Bharat Sanchar Nigam Ltd,RITES Ltd and Ircon.

    Besides, listed government companies that are profitable and have less than 10 per cent floating equity will also be going to the market.

    Though, 18 government companies are listed and do not comply with themandatory 10 per cent norm , about 10 such companies are profitableand will need to come out with a follow on issue . These include MMTCLtd and National Mineral Development Corporation. The government will

    need to disinvest 8.3 per cent in NMDC and 9.3 per cent in MMTC toincrease the public float to 10 per cent. The money from disinvestment will go into the National Investment Fund

    (NIF) created in 2005.

    Source : Business Standard, November 6, 2009

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    No. of listed PSUs to triple after disinvestment plan

    The number of listed PSUs in the country is likely to

    triple in the months to come with the government(As disinvestment plan that seeks to list all

    profitable PSEs) At present there are around 55 listed public sector

    entities - Number could go up to over to 150, asnearly 100 others, including BSNL, qualify for thelisting.

    Meanwhile, the market cap of the 150 listedcompanies would represent a huge chunk of thetotal market cap of all the firms listed on the BSE.

    Source : Business Standard, November 6, 2009

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    No. of listed PSUs to triple after disinvestment plan

    At the end of Nov. 15, 2009 trade the m-cap of the companies

    in the BSE PSU index stood at Rs 15.76 lakh crore ,accounting for one-third of the total m-cap of BSE, whichstood at around Rs 54 lakh crore.

    The major surge in the m-cap tally would be from telecommajor BSNL, an unlisted entity, whose valuation has been

    pegged at about $100 billion and a paid-up capital of aboutRs 5,000 crore.

    In its second term, the Congress-led government has already paved the way for listing of two PSUs - NHPC and Oil

    India, and decision on Nov. 15, 2009 would result in moreCPSEs hitting the capital market.

    Source : Business Standard, November 6, 2009

    Lotte India plans delisting

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    Lotte India plans delisting

    Lotte India Corporation Ltd EGM on April 9 2009 to seek shareholders approval

    for delisting the company from the stock exchanges.

    March 13 2009 - The company informed the stock exchange that the company has received a proposalfrom its Korean parent Lotte Confectionery Co,which holds 80.39 per cent of the equity, capital toacquire the other 19.61 per cent of equity shares of the company in accordance with SEBI (Delisting of Securit ies) Guidelines, 2003.

    Source : The Hindu Business Line, March 14, 2009

    Lotte India plans delisting

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    Lotte India plans delisting

    For the quarter ended December 31, 2008, it trimmed its net

    loss to Rs 1 crore on a turnover Rs 44.5 crore from the netloss of Rs 2.7 crore on a turnover of Rs 38.5 crore posted inthe comparable quarter in the previous year.

    For the whole of last fiscal it reported a net loss of Rs 5.8 croreon a turnover of Rs 154.1 crore.

    Last year too the company made an attempt to buy back itsshares through the reverse book-building route andappointed SBI Capiral Markets to manage the offer.

    Then, the floor price was fixed at Rs 300 per share. However, it

    later informed that it could not accept the discovered priceof Rs 825 per share.

    S Th Hi d B i Li M h 14 2009


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