Don’t derail delisting

economictimes.indiatimes.com:

Indian equity investors were on a wing and a prayer after every transaction on the stock exchanges. Few were sure about receiving their money for the shares sold, and fewer were confident that they could smoothly transfer the ownership of shares in their names even after paying up. Today, trading and payments are seamless and quick, thanks to Sebi’s tireless efforts since the 1990s to clean up the opaque system dominated by a small group.

Over the years, market depth has soared, rivalling major markets. But the incredible part is that India counts as among the top transparent and democratic markets, with individual investors being on a par with mighty private funds and corporate management. A proposal is in the works at Sebi on the delisting of shares at a fixed price by corporates.

The details would be made public soon. Sebi appears to be leaning towards more power to the buyers than the current marketdetermined process for delisting. The reason is the possibility of misuse.

‘Certain operators are specialists in delisting of shares…,’ Sebi chairperson Madhabi Puri Buch said recently. ‘Their business model is, wherever there is an anticipation of delisting, go and garner 10% or more amongst their own like-minded people. And when the delisting proposal comes, to extract a higher price.

That need not always be the fair price.’ Isn’t the open reverse book-building process the most efficient process of finding value? To start with, the delisting offer is always from the insider. The insider knows the value of the company and what are the future earnings prospects than even the sharpest of market analysts. He knows the products in the pipeline, he has a plan that he is not disclosing to the market.