Merchant bankers want the market regulator to ease exit of companies that were once listed on regional stock exchanges and have now been shifted to dissemination boards of national stock exchanges.
The companies were moved from regional stock exchanges because the bourses had stopped operating or were on the point of shutting.
A dissemination board is a trading mechanism on national stock exchanges for shareholders of companies that were once part of regional stock exchanges that have now been derecognised or shut. The market regulator has given firms on dissemination boards time till October to get properly listed on national stock exchanges.
"We want the regulator to ease the process of exit for companies that are a part of the dissemination board by doing away with the mandatory reverse- book- building process," said amerchant banker.
At present, firms with paid- up capital of not more than Rs.10 crore each, and net worth below Rs.25 crore each, as on the last day of the previous financial year, are exempt from reverse book building. ( Paid- up capital is the amount of a companys capital funded by shareholders. It can be less than a companys total capital, because a company may not issue all of the shares it has been authorised to sell.) In such cases, the promoter and the merchant banker decide the exit price. The promoter proposes buyback to all shareholders. Once consent is received, the promoter buys back shares and the shareholders exit. However, this exemption is only for the properly listed companies and not for those on the dissemination board, which are technically not listed.
"The market regulator should issue a circular covering companies on the dissemination board. This will help the companies to work out amechanism to help investors exit at fair valuation," said the merchant banker.
Reverse book building is the process by which acompany that wants to get off an exchange, decides on the price that needs to be paid to shareholders to buy back stocks. Shareholders then bid at various prices above or equal to the floor price given by the company. The final buyback price is determined after aggregating all shareholder bids. Once the price is finalised, all offers below or equal to this final buyback price are accepted. The offer is termed successful only if a minimum number of shares are tendered by shareholders and accepted by the company. The whole process is time- consuming and complex, and therefore, reverse book building is opposed by merchant bankers in this case.
Experts say most of the shares held by the investors of these companies are in the physical form. This is a challenge. The shares need to be verified, then converted into electronic format through a depository participant or handed over to registrar and transfer agents. "There is a need for a third- party account which remains open for up to a year after the exit process to ease payment to shareholders who have not tendered their shares and want to do so later," the banker said.
The firms which have been moved to the dissemination boards of the National Stock Exchange (NSE) or the BSE have seen very little or no trading activity since being shifted. Currently, more than 400 companies make up the dissemination boards of the BSE and the NSE. These companies are treated as unlisted and the exchanges do not supervise trading in their shares.
Madras Stock Exchange, Bangalore Stock Exchange, Kochi Stock Exchange, Vadodara Stock Exchange, Hyderabad Stock Exchange, and Inter- connected Stock Exchange are some of the regional stock exchanges that have ceased operations.
Business Standard, New Delhi, 10th March 2016
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