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The Securities Exchange Board of India (Sebi) has recently proposed draft Sebi (Delisting of Securities) Regulations, 2004, to repeal the delisting guidelines dated February 17 2003. The main provisions of the proposed Regulations are:

Only securities that are listed for three years qualify for delisting.

Companies are prohibited to delist on a buyback of, or preferential allotment by the company, of its securities or when convertible instruments of the company are outstanding.

The application for delisting must be made within a year of the passing of a special resolution of shareholders.

The offer price is to be determined through a book building process wherein all public holders of the securities (except promoters and persons acting in concert with them) are entitled to participate. This also provides a mechanism for determining the floor price of infrequently traded shares.

Companies with no more than fifty public holders of securities, may seek exemption from the applicability of the book building process after obtaining approval of 90% of those public holders.

An amount equivalent to 100% of the estimated consideration, calculated on the basis of floor price and number of securities to be acquired, must be deposited in an escrow account.

Securities are deemed to be delisted, consequent upon withdrawal or non-renewal of recognition by stock exchanges where those securities are listed. In such an event promoters are required to make a listing application to any other stock exchange after obtaining approval of the security holders, failing which they would have to grant an exit option to the public holders of the securities.

In cases of delisting pursuant to rights issues, promoters are required to purchase securities held by public holders at the price of a rights issue.

Shardul Thacker

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