Sebi team working on relaxation for IBC firms

Easing of delisting rules and exemption from public shareholding norms among key proposals

Market regulator Sebi has formed a team to look into securities law changes, after advent of the Insolvency and Bankruptcy Code. The team will collect inputs from all stakeholders and examine feasible proposals. The final report is expected by March.

The Securities and Exchange Board of India (Sebi) has formed a team to look into securities law changes, after advent of the Insolvency and Bankruptcy Code (IBC). The team will collect inputs from stakeholders and examine feasibility of proposals.

Sources said doing away with the tedious reverse book building process (RBB) for delisting of IBC companies, exemption from minimum public shareholding (MPS) norms and relaxation from some compliance requirements will be among the recommendations considered. The final report is expected by March.

The move comes after Sebi, the markets regulator, received requests from stakeholders, especially banks, to relax certain regulations in line with the newly enacted IBC. This would be the second round of relaxations for IBC companies. Previously, Sebi had exempted buyers of insolvent companies from making an open offer to minority shareholders during a takeover.

“We have been receiving several inputs from stakeholders to tweak some of the existing regulations for companies under IBC. Hence, we have formed an internal team,” said Ajay Tyagi, chairman, Sebi.

Many companies undergoing insolvency proceedings are listed players. However, several prospective buyers are keen on delisting the sick companies after acquisition. This would reduce compliance burden, as there

would be no need for the new buyers to engage with minority shareholders for every important decision.

Several bankers had approached Sebi, seeking exemption from RBB and creating a scheme where the exit price is determined by independent valuation, by experts. A similar scheme was

earlier proposed by Sebi in the compulsory delisting of regional stock exchange listed companies, which had not migrated to a recognised bourse.

In normal circumstances such an exercise needs to follow Sebi’s delisting guidelines. However, the framework is comparatively rigid. There is a good chance that a few minority shareholders could hold the delisting hostage.

RBB is a price discovery mechanism for minority shareholders. Shareholders bid for the price at which they are willing to tender shares. The final offer price for delisting is determined at which the highest number of shares has been offered. Hence, minority shareholders in tandem could derail a delisting process by jacking up prices and making the buyback unviable for the company.

While Sebi kept the delisting norms tight to discourage promoters from bulldozing their decision on minority shareholders, legal experts say IBC cases are very different, as public shareholders lose their say in the process itself.

“Sebi should review some of its regulations to make the IBC process smooth and successful. While a company is undergoing a turnaround through IBC, it is difficult to expect it to comply with normal Sebi regulations. Minority shareholders lose their voice in IBC companies, as most of such companies see 99 per cent of their equity wealth being wiped out,” said Sandeep Parekh, founder, Finsec Law Advisors.

Another suggestion under Sebi consideration is relaxing of the MPS requirements for companies under IBC. According to the current rules, every listed company should have a minimum 25 per cent public shareholding and if it falls below the threshold, the company is given one year to readjust and achieve the 25 per cent requirement.