IPOs won’t be a no-exit entry, say experts after Sebi makes delisting easier

After the markets regulator Sebi approved introducing a fixed price process for delisting companies from stock exchanges, market experts welcomed the move saying that in the earlier book-building regime listing had become a no-exit entry.

“It is a good initiative by Sebi considering all those entities who attempted delisting in the past few years and were unsuccessful. These entities may attempt again for delisting. With the amended delisting framework now even if the entity fails to acquire 90% of total share capital but if the majority of public shareholders are ready to offer shares then the delisting process can be successful,” said Makarand M Joshi of corporate compliance firm MMJC & Associates.

He said with the new framework, entry, and exit will be possible and realistic. Under the new mechanism, the fixed price offered by an acquirer shall be at least a 15% premium over the floor price as determined under Delisting Regulations. Public shareholders would be given a binary option to accept or reject the offer at a reasonable fixed price.

While describing the new rule as a game changer that can boost M&A deal activity, Abhishek Dadoo of Khaitan & Co. said the old regime enabled delisting through a reverse book build process that often resulted in extraordinarily high prices – rendering the delisting commercially unviable.

“The new fixed price delisting regime seeks to simplify the road to delisting, which has so far been highly elusive on account of the reverse book build method for price determination,” he said.