For multinational companies with high promoter holding, the new rule on a minimum public float for listed companies could well be a case of choosing between the devil and the deep sea.
Not many are keen on diluting further promoter stake and delisting attempts do not have an impressive record in the country.
This leaves most of the listed MNCs with very few options. In the current calendar year, three out of five delisting offers have failed, the most recent instance being that of Goodyear India.
Last month, the government announced that all listed entities should have a minimum of 25 per cent public holding. Companies with a lower float had to dilute at least five per cent every year. For entities against the idea of further dilution, delisting would be the only option.
According to estimates, there are 29 listed MNCs with promoter holding in excess of 75 per cent. It is widely believed that MNCs would opt for delisting rather than further dilution.
Early this month, the delisting offer of Goodyear India failed as the minimum number of shares were not tendered during the offer period. "Since the number of offer shares tendered in the reverse book building process at or below the discovered price is less than the minimum number of offer shares required to be accepted for the delisting offer to be successful... the delisting offer is deemed to have failed," said the exchange announcement.
Goodyear India is not an isolated case. The delisting offer of Elantas Beck India also failed for a similar reason. While the delisting offer of Suashish Diamonds was also unsuccessful, the reason was that the discovered price was not acceptable to the acquiring entity. The year, though, has seen two successful delisting offers, for HSBC Investdirect (India) and Micro Inks.
Delisting hurdles
However, say market experts, delisting is difficult in India, especially after the new guidelines notified last year. Under the new norms, a delisting offer is considered successful if the total promoter holding post the acquisition of shares from the public crosses 90 per cent.
In instances wherein the promoter holding is already more than 90 per cent, at least 50 per cent of the delisting offer size has to be acquired to term it successful. Delisting is a bigger challenge for companies where the retail holding is sizeable, they add.
"Delisting is a challenge," says Sanjay Sakhuja, CEO, Ambit Corporate Finance, that has managed a few delisting offers in the past. "In cases where there is a large public (retail) holding, an attractive price (for the shareholders) might prove costly for the promoters. In companies where there are large blocks available with institutional investors, one can negotiate on the price."
Sakhuja does acknowledge that some of his clients are "considering" delisting while evaluating the "cost of delisting versus the cost of staying listed".
In a similar context, SMC Capital equity head Jagannadham Thunuguntla says the "break-up of holding of shares" plays an important role in determining the probability of a "delisting offer being successful". "The success of a delisting offer depends on the institutional holding. If that is high, the probability increases," he says.
While a higher institutional holding may make the job easier for many of the listed MNCs eyeing delisting, there are many foreign entities whose Indian subsidiaries have a high retail shareholding. Some of those with retail holding in excess of 10 per cent are Alfa Laval, Atlas Copco, Warren Tea, Hella India, Honeywell Auto, Ineos ABS (India), Timken India, Sharp India, Wendt India, Novartis India, Thomas Cook (India) and GMM Pfaudler.
"Investors have to be slightly careful while dealing in shares of MNCs that can be delisted," says Thunuguntla. "There might be a sudden spurt in the prices on expectations of a good delisting price. But if the offer fails, the stock price may again fall back to the old lows."
