PAVAN KUMAR VIJAY
The regulator’s action may not go down smoothly with Regional stock exchanges
Capital markets regulator SEBI has announced that it is planning to show the exit door to nearly 4,200 companies. This includes those listed on Regional Stock Exchanges (RSEs) and those suspended for over seven years at nationwide bourses.
Though this is a good move, we must address the issues and problems faced by these companies.
There are around 20 Regional Stock Exchanges that have been derecognised by SEBI. They have 5,000-6,000 companies listed on them. By virtue of de-recognition, the companies exclusively listed on these exchanges have ceased to be listed entities and shifted to BSE/NSE Dissemination Board (DB).
This treatment of being considered “unlisted”, gave many promoters and directors the leeway of preferring to move to DB and thus being declared unlisted by the regulator itself, with no obligation of following the delisting regulations or providing any exit to their public shareholders.
However, the SEBI circular dated April 17, 2015, made it categorically clear that this “unlisted” treatment does not absolve the promoters of giving an exit to their public shareholders. This circular, for the first time, talked about the scrutiny measures. It mandated that promoters and directors of such companies that fail to either get listed on other stock exchanges or to provide exit to their shareholders will undergo stricter scrutiny from SEBI. The RSE companies were given an 18-month extension to decide upon either of the options.
But there are reasons why the companies are still not able to decide upon the liquidity option or exit option.
One, the companies could have moved to nationwide exchanges after complying with their diluted listing norms and the nationwide exchanges have to facilitate the listing of these companies on priority basis, in a time-bound manner. Accordingly, the nationwide exchanges promulgated diluted direct listing norms and over a period of time, these relaxed norms have been tightened, thus clamping down on the number of listing eligible companies.
Two, many companies that intend to go in for direct listing are not in a position to do so. In case they undertake corporate actions by way of further issues to meet the criterion, then there is a mismatch between their paid-up and the listed capital, thus making them ineligible for direct listing.
Three, another set of companies are clear that they do not intend to go in for listing; instead they are willing to provide an exit to their public shareholders. As these companies are not listed on any recognised stock exchanges, SEBI delisting regulations, per se, are not applicable. Even if one voluntarily follows the process, how will the derecognised exchange give delisting approval(s) to the company? Four, the IPO of these companies must have been in the early 1990s — over 20-25 years ago. Companies are not able to act due to the non-traceable shareholders.
There are nearly 1,200 companies that have been suspended, primarily for non-compliance with the listing agreement. Over the years, the regulators realised that suspension only hampers public interest; Promoters were least deterred and the suspended status was more benefiting and did not compel them towards compliance.
In July 2015, SEBI prohibited the suspended companies from raising funds from the public or even to transfer their shareholdings. It has now decided that such companies will de-list and pay their public shareholders the price determined by an independent valuer.
It will help if the exchanges can come out with some amnesty scheme, and charge a relaxed fee for past non-compliances and lower the reinstatement fee. Also, the delisting will not be voluntary, but would be a penal measure; it would tantamount to compulsory delisting and this has vicious effects — the company, promoters and directors cannot directly or indirectly access the capital market for 10 years. In addition, the exchange may file prosecution against them and may even file a winding up petition. Given these issues, it may be better to open the doors for listing at a nominal cost. It would even lead to better equity cult amongst the investors. On the other hand, huge fee or penalties impose a deterrent for the promoters to take a positive decision. Also, in case of an exit, it is important to pay attention to how public shareholders are being informed and ultimately being paid off. This includes keeping in mind the non-traceable and non-responding shareholders.
The writer is Founder, Corporate Professionals