Corporate actions often give cues about current business health and indicate how the stock is likely to perform in near future. Corporate actions bring material changes to a company, and often directly affect stakeholders. The recent announcement of
The promoter group,
Why Delist now?
Typically, companies opt for delisting when they have eyes set on expansion, restructuring, or promoters hoping to increase their holding. Vedanta, as an illustration of voluntary delisting, should customarily offer its shareholders a price well over the stock prices and more aligned with the book value and earning potential of the company. Let alone what's fair to the public, there are several advantages to the company and its proportionate disadvantages to the public at large.
For the promoter group, the proposed delisting affords improved operational and economic flexibility to its capital-intensive natural resource and mining businesses. With lesser interruptions by dissenting shareholders, the promoter can regain control and is likely to call the shots during such unprecedented times. Consequently, the delisting transaction will lead to debt reduction and provide a bullish growth trajectory in the long run. Besides obvious business benefits, the proposed delisting offers immediate and certain realization value to its shareholders in times of an economic slowdown and market volatility leading to a win-win situation for the company and its shareholders.
Cutting a
Today, on
However, directors ought to have a duty towards their shareholders i.e. public throughout the process of delisting. Vedanta's rating as per S&P was downgraded in March giving
The Long Haul
After the meeting, for Vedanta Delisting a final approval is sought from shareholders, foreign institutional investors, portfolio investors, domestic institutions etc., through a "special resolution" which if approved, must be notified to stock exchange on principle agreement by shareholders. If such affirming condition arises, entire delisting process ends here. However, if shareholders did not put their foot down to this, merchant bankers role come into picture who will act as in-charge of this Vedanta's delisting process leading through funds of entire process. Thereby, reverse book building process comes into picture, whereby merchant bankers tend to understand the price at which investors might agree to sell shares. In a nutshell, bridging the gap between shareholder expectations and the company's offer price and reaching a consensus maybe an onerous task and also pulls back a curtain whether the proposed delisting of Vedanta will succeed or not.
In the case of Vedanta, individual retail investors, FIIs, DIIs, Mutual Funds collectively hold about 49.86% of the shareholding. But individually, retail investors hold 7.26% and high net worth individuals with .28%, Mutual Funds hold about 10.91%, Foreign Institutions about 15.18%; thus leaving negligible power at the grass-root level to influence the delisting process.
Conclusion
In the event if public or minority shareholders are not ready with this delisting and risk their shares, hold on shares can still be in picture. However, those shares will have nil to zero liquidity leaving them in a dead man walking state. By then,
Over 40 companies have been delisted in the past decade, and it is evident that the path to delisting is time-consuming, requires surmounting various approval-loops and riddled with challenges. While delisting a natural resources and mining giant at low valuation appears to be a smart business move, investor protection takes a backseat with no adequate legal framework to safeguard their interests. In effect, regulatory authorities are unable to provide a conducive regulatory environment balancing the interests of companies and investors alike. While Merchant Banks furnish their due diligence report on the delisting process in the Board meeting scheduled today, on
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