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MNCs: Delisting Via OFS Route?

Published on Wed, Mar 19,2014 | 18:09, Updated at Wed, Mar 19 at 18:09Source : Moneycontrol.com 

In this report, IIAS asks ‘Have MNCs found a way around the delisting norms?’

The board of AstraZeneca Pharma India, in a meeting held on 15 March 2014, approved the company’s decision to delist from the stock exchanges - despite public outcry and stiff resistance to the proposal from minority shareholders. In the wake of this announcement, IiAS examines whether listed MNCs in India have found a way around the stringent SEBI delisting norms.

One of the patterns which is emerging is oddly enough,  the ‘Offer for Sale (OFS)’ route. Retail investors in both companies have alleged that entities which participated in the OFS were acting in concert with the promoters and would sell the shares purchased through the OFS to the promoters.  This would satisfy the minimum acceptance level for the delisting to go through and leave the retail shareholders orphaned. As evidence, disappointed investors cite that many new investors in AstraZeneca hold these shares through P-notes: some investors may be genuine, while others may be masked and could be warehousing. This impacts true price discovery.

The Companies Act 2013 (introduced recently) and SEBI corporate governance code (to be implemented soon) not only require a larger set of disclosures and approvals, but also raise the risk of litigation through class action suits. Given the increased cost of compliance, very few MNCs want to remain listed in India. But delisting in India is difficult and expensive, which may be prompting some of these companies to side-step the delisting regulations.

The current delisting regulations are clearly onerous. These, together with recent regulatory changes in the OFS guidelines, gives rise to unintended consequences, and small shareholders lose out.

SEBI must revisit these guidelines.

The full report is attached here.

Disclaimer: The information/opinions expressed in this report/newsletter are those of the author. This website has not verified the accuracy of the claims made in the report/newsletter, nor does it agree or disagree with, or endorse any information/opinions contained therein.

Attachments : F1 2 Institutional EYE_Delisting - OFS.pdf
 
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