Recently, there were numerous stories of Vedanta’s failed effort to delist itself from Indian stock exchanges. This whole issue must have raised many doubts in your mind regarding the role of stock exchanges, shareholders and the SEBI. Here is a detailed explanation of the things that are part of the whole story and what led to Vedanta’s failed attempt to delist from Indian stock exchanges.
Before diving straight to the story, we must be well-aware of the peripherals. As the story revolves around delisting, let us first understand how listing and delisting work in stock exchanges.
Listing in a Stock Exchange
As the name suggests, listing depicts the process by which a Company includes its shares in any Stock exchange for open trading. You must have seen the rolling tickers of some companies and their prices on certain News channels. Those companies’ shares are listed in one stock exchange, and their value depends on trading by multiple shareholders and brokers.
Companies list themselves for primarily three reasons-
Easy Access to Capital
Listing in a stock exchange enables a Company a huge pile of capital from the public. This may boost the Company’s growth.
Transparency & Efficiency
By listing, the Company has to adhere to all the rules and regulations prescribed by the Security and Exchange Board of India (SEBI). It leads to tremendous transparency and efficiency in the Company’s day-to-day operations.
Listing in a stock exchange increases the participation from the common public, and this leads to greater brand visibility. It sometimes works as an indirect way of advertising. Getting listed also gives significant credibility to the brand.
Delisting from a Stock Exchange
Delisting refers to the removal of a Company’s stock from a Stock exchange. Delisting happens in two cases- voluntary delisting and forcibly delisting by SEBI. SEBI delists companies from Stock exchanges upon non-adherence to rules and regulations. However, Companies often delist voluntarily for many reasons. Delisting means that the shares of the Company will no longer be available in the Stock Exchange to trade, and it has to solely depend on the promoters for all its Capital requirement. Here are certain reasons Companies go for voluntary delisting-
Companies often find that the listing, compliance and trading expenses are too big to afford.
A stock exchange-listed Company has to follow all the rules and guidelines of SEBI, and it has to be under constant surveillance of the market regulator. This may negatively impact the Company’s decision making and efficiency.
In order to save the interest of the minority investors and bring transparency in the way of dealing, the SEBI mandates the listed Companies to disclose their annual reports and shareholding pattern in public.
Vedanta Resources is a global diversified metals and mining company, and it is headquartered in London. In May 2020, it announced its plan to be delisted from Indian bourses. It should be noted that Vedanta Resources had successfully delisted its shares from the London Stock Exchange in 2018.
As per SEBI’s guidelines, delisting can happen only with the approval of owners of at least 90% shares. In order to achieve this target, Companies do the Reverse Book Building.
Reverse Book Building refers to the process in which a Company decides on the price that needs to be paid to public shareholders for buying back. Only after receiving confirmed biddings from the public shareholders, the Company can go for delisting from exchanges. In this process, the Company needs to buy the shares from the public shareholders at a price desired by the latter.
In Vedanta’s case, the Company fixed the delisting offer at Rs 87.5 per share in May when the value per share was hovering around Rs 70 per share. However, not all the shareholders agreed on this price. One of the major shareholders- LIC, with a whopping 6.37% stake in the Company asked Rs 320 per share.
This fixation of the price at this high led to higher asking price by other shareholders. Most of the shares got bidding above Rs 170. As mentioned earlier, Vedanta had to show confirmed bidding of at least 90% shares. Take a look at the shareholding pattern of Vedanta Resources given below.
|Total Equity Shares||356 Crore|
|Required Shares for Delisting (90% of total)||320 Crore|
|Shares with Promoters||186 Crore|
|Shares with Public||169 Crore|
|Shares required for the process||134 Crore|
Out of the required 134 crore shares, Vedanta could only manage to get confirmed biddings of 125 crore shares. This technically failed the whole delisting process. Vedanta Resources later asked SEBI for a few more days as it alleged of some technical glitches on the last day. However, SEBI decided to close the process without giving any additional window to Vedanta Resources.
Also to have a detailed insight into the topic, watch the video below-
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