DELISTING – BEST EXIT OPPORTUNITY

By Ruma Dubey

The new delisting rules issued by SEBI are brewing a new kind of battle.

The norm does provide a time-bound speedy resolution for the beleaguered companies under the NCLT but do the shareholders, the retail or public shareholders get a good deal?

Under the news exemptions for delisting, SEBI has stipulated that such delisting has to be a part of the resolution plan approved by the National Company Law Tribunal and any of the two conditions have to be met:

i) The resolution plan provides a specific procedure to complete the delisting of such share; or

ii) The resolution plan provides an exit option to the existing public shareholders at a price specified in the resolution plan.

On the face of it, this is a very good move as it provides an exit option to both the new promoters/lenders and also the public shareholders.  SEBI has stated that all shareholders – be it the lenders, promoters or public shareholders, all will exit at the same price.

But what could brew discontent is the exit price. SEBI has stated, “Exit to the shareholders should be at a price which shall not be less than the liquidation value as determined under the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 after paying off dues in the order of priority as defined under Section 53 of the Insolvency and Bankruptcy Code.”

In simple language – Exit Price = liquidation value – dues to be paid as per priority laid down by the insolvency code.

This means that the shareholder will get an exit price, only after all creditors have been paid off and whatever is left, the measly morsels will come the way of retail holders. The question is – will anything come their way at all? In most of the insolvency companies, the liquidation value might end up being nil. This means the new promoter can seek delisting without having to pay anything at all to the shareholders. They will get something or anything only when the liquidation value is higher than all the value owed to the creditors. The objective of SEBI is very noble – through this delisting, it wants to ensure that there is a level playing field where public and promoter get the same exit price. But like all noble ideas, this may not always work out in favor of the public shareholders.

The case in point showing us exactly this is the delisting price of Electrosteel, which is being taken over by Vedanta Star. Yesterday, Vedanta spelt out that the liquidation value was not sufficient to cover the debt owed to creditors and this meant liquidation value or exit price for equity shareholders was nil. But based on the resolution plan, Electrosteel stated that equivalent per share exit price post completion of Transaction Steps is Rs 9.54 per equity share (Post-capital Reduction Price). Well, something is better than nothing.

This also brings to the fore the ongoing takeover of Bhushan Steel by Tata Steel. Post this notification of delisting, it is likely that Tata Steel will also go for delisting of Bhushan Steel by changing the resolution plan to include the delisting process. Tata Steel has already placed Rs.9000 crore in convertible instrument in the revival plan payment.

It is too early to say whether all companies being takenover in the NCLT will go delisting. But what we can say for sure is that this is a good move to bring this ongoing saga to an end, making it attractive for bidders. Kudos to that!