Brakes on Delisting
So atlast, SEBI seems to be worried by the delisting spree resorted to by subsidiaries of MNCs from the Indian stock exchanges. In a bid to ‘dissuade’ good companies exiting from domestic stock exchanges, the regulator is setting up an expert panel to go into the matter and give recommendations. The normal expectation is that it could tighten norms for buying out the publicly held shares and make it that much more difficult for the MNCs. For the past couple of months MNCs have been looking to delist and go private in India. As ownership restrictions have already been eased, the lower stock prices definitely have given a chance to these companies to do what they always wanted to- remain as private subsidiaries of the parent companies. Over 50 companies have made their intent clear to delist, of which pharmaceutical companies have so far not been in the forefront, except for Infar and the FMCG company Reckit Benckiser for now. Ciba Specialities though not exactly a pharma company, has also recently announced a buy back. The price movements of some other stocks like Aventis, Pfizer, Parke Davis and E Merck may also suggest something. Except good results from Aventis, there is no other news that can take up stock prices. Glaxo and Burroughs Wellcome too have recently gone up, but that can be due to a good first quarter performance again, apart from conducive background from the stamp duty front for an official merger and prospects of an imminent sale of assets at Worli.
As far as pharma MNCs are concerned, they have never been interested in being listed on the Indian Bourses. If it was not for the FERA-dilution Act, most of the presently listed pharma companies would not have had Indian shareholders. MNCs have never raised Indian capital, may not do so in the future, and so there is no apparent reason for them to be listed. Again, the past listing was through equity dilution and not raising of fresh equity. It is another matter if it was done forcefully then and at unrealistic prices. But then, the current valuations appear too attractive to be ignored. Every year five per cent can be acquired under the creeping acquisition norms, with 10 per cent limit under special resolution. Then again, a 20 per cent open offer could easily be made with special permission to retain more. It is very easy to delist above 90 per cent holding. This is a reality and can happen in due course of time. The MNCs’ aversion to multiple listings in multiple countries is understandable, to the extent of adjusting to cumbersome procedures of compliance and disclosure norms. Once delisted, companies need not maintain all sorts of registers and can easily bring down the costs like printing annual reports, mailings, running share departments and the like. Then, royalty and dividend will be the main outflows to parent companies. Indirectly this could help the parent companies bring in investments when required in the near future as things seem to indicate. Short of delaying the inevitable, SEBI could find it difficult convincing the MNCs to desist buy-outs.