Investors who have punted on the Insolvency and Bankruptcy Code (IBC) bound stocks hoping to cash in on business turnaround could be in for a rude shock due to the new delisting rules. The special regulations released by the Securities and Exchange Board of India(Sebi) for delisting of IBC bound companies provide flexibility to the acquirers, including exemption from any reverse book building and requirement for minority shareholders’ approval. As a result, the new managements are providing exit to existing shareholders by paying a paltry value, said experts.
For instance, consider the delisting case of Electrosteel Steels which was acquired by Vedanta Group. The company offered a delisting price of only 19 paisa per share while the Electrosteel shares were trading at around Rs 26 in the stock exchange platform at the time of announcement. Similarly, in case of Assam Company, the acquirer BRS Ventures has offered to pay only 10 paisa per share to public shareholders even as the stock was trading at around Rs 5 at the time of announcement. Lawyers privy to the development said, there are atleast four more delisting issues in progress wherein the minority shareholders will get a raw deal.
“IBC is a creditor driven process and equity shareholders have no say in the process. This is primarily due to lack of any minority shareholder representation in the IBC process,” said Pavan Vijay, founder, Corporate Professionals. “The new managements are undertaking capital restructuring in the insolvent companies wherein they are diluting the public shareholding significantly.”
These delisting prices are a fraction of even the actual face value of the shares of the company. Before providing an exit to the existing shareholders, the acquirers are restructuring the capital of the company.