SEBI announced a consultation to improve the stock delisting framework.

SEBI’s main proposal would allow any company to be delisted via a fixed price tender offer, contingent upon 90% acceptance by all shareholders. This would be a great improvement on the current system of reverse book-building, which allows shareholders with small stakes to hold a transaction hostage by driving up the tender price to unreasonable levels, frequently resulting in the offeror walking away.

Of particular interest to us was an additional proposal specifically aimed at holding companies – defined by SEBI as those with at least 75% of assets in the form of stakes in other companies.

Assuming two-thirds approval from public (nonpromoter) shareholders, holding companies would be able to delist through a scheme of arrangement whereby the holding company’s shares are cancelled in exchange for shares in the underlying listed holdings, with unlisted shares sold for cash which is then paid out.

The relatively low voting threshold would make it significantly easier to unlock the value contained in some of the deeply-discounted Indian holding companies, in our view.

Japan’s Financial Services Agency is examining a long-standing loophole in the tender offer rules. Currently, an acquirer can buy any amount of shares in a company on-market without having to tender for the whole company.

A tender offer is only required when a 33% or more stake is bought off-market. This contrasts with jurisdictions such as the UK, where an acquirer must make a full tender offer upon reaching a certain threshold, irrespective of how the shares were acquired.

The loophole has resulted in quite a few recent instances of investors coercing companies into paying large dividends or executing large share buybacks, which in many cases have disadvantaged other (particularly foreign) shareholders due to withholding taxes.

Closing the loophole will improve the transparency of the market and level the playing field for all investors.

The regulator is also looking at rules around coordinated actions by multiple shareholders.  At the moment, it is not clear how much discussion can take place between shareholders before joint disclosure filings are required. In practice this leads many investors in Japanese listed companies to be cautious about talking to other shareholders.

Dialogue between minority shareholders can be a powerful check on corporate governance. Metrica looks forward to seeing how the new framework facilitates this.