The Tense Standoff Between Companies, Shareholders, And SEBI
You have probably heard of those exciting moments in the stock market when companies decide to go public and make their debut with an IPO.
It’s like a big coming-out party for them, raising funds and inviting the general public to invest in their shares.
But guess what?
Sometimes, these companies have a change of heart and decide they don’t want the public owing their shares anymore
And that’s when they go for delisting.
Delisting is when a company removes its shares from public trading, so they’re no longer available for play in the stock market.
Some reasons for delisting include dealing with regulations or wanting more control for the promoters. But, let’s talk about that another time.
So, how does delisting unfold?
In the world of delisting, the company (read: the promoter) decides to buy back the shares from its shareholders.
To make this happen, they call in investment bankers to handle the process.
These banking wizards set a floor price, which is simply the minimum price, at which shareholders can bid or sell their shares to the company.
Here’s where things get interesting.
Shareholders who want to sell their shares place their bids through their brokers at or above that floor price set.
Now, the bankers do some number crunching and come up with the final buyback price.
The shareholders whose bids are lower or equal to this price are the lucky winners, and the company showers them with moolah for their shares.
But there’s a catch.
SEBI has a rule that makes delisting a no-go unless the total shares tendered for the process are less than 90%.
If shareholders holding at least 10% of the total shares refuse to sell, the delisting plan goes down the drain.
That’s precisely what happened to Vedanta in the late 2020s.
Now, you might wonder why SEBI has this rule in place. Well, it’s all about protecting the minority shareholders from getting a raw deal.
SEBI doesn’t want promoters to low-ball the floor price and snatch away the fair value of the stock from the little guys. After all, fairness is the name of the game!
But just like in every movie, there are always those sneaky characters who try to take advantage of the situation.
In this case, we have some stock operators who play a different tune. They buy enough shares to tip the scale, making sure they hold at least 10% of the total shares.
And guess what?
When the company needs to buy over 90% of shares for successful delisting, these operators bid at extremely high prices to make the company set an unrealistic buyback price.
The stock operators here try to extract more than the “fair value” they deserve.
But fear not, my friend. SEBI is no pushover. They’ve got their eyes on these tricksters, and they’re planning to make some changes to the rules.
While SEBI is all about safeguarding the interests of investors, they won’t sit idly when a small group of mischievous investors try to bend the rules.
In a classic game of cat and mouse, SEBI has decided to throw a curveball at those cunning stock operators.
SEBI’s grand suggestion is to allow companies to carry out the delisting process through a fixed price mode.
So, how does this work? Well, it’s as straightforward as it gets.
The company decides on a fixed price at which it’s willing to buy back shares from shareholders.
This fixed price is like an open book – it’s disclosed upfront and remains unchanged throughout the whole process. No secrets, no shifty moves, just good old transparency.
Shareholders who are cool with the fixed price can gladly hand over their shares to the company.
In return they bid farewell to the stock market as the company goes private.
Sounds simple enough, But that doesn’t change a thing for stock operators.
They’re known for their craftiness, and they might just decide to play the spoilsport once again.
They could collude, forming an unholy alliance, and refuse to agree to the fixed price.
And guess what happens then? Yup, you guessed it – the delisting process goes down the drain yet again, thanks to that pesky 90% threshold rule.
So now we have a classic standoff – the stock operators versus SEBI. It’s a showdown of wits, and both sides are playing their cards close to their chests.
But who will emerge victorious in this thrilling duel?
Will SEBI’s new fixed price mode prove to be the ultimate game-changer, thwarting the cunning plans of the stock operators?
Or will the operators outsmart SEBI once more, leaving them scratching?