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Exit price for delisting — Reverse book-building route prone to manipulation: CII

K.R. Srivats

"Reverse book-building requires generating offers from the sellers (shareholders) who have no indication of the buyer's intention - on the price that the buyer is willing to pay for the strategic value of the company.," the CII said.

NEW DELHI, Aug. 17

THE Confederation of Indian Industry (CII) has expressed serious reservations against the adoption of the reverse book-building method for arriving at the exit price for delisting of shares.

The chamber has recommended that the average of weekly highs and lows of either 26 weeks or 52 weeks be adopted as the minimum offer price for delisting of shares.

The CII representative on the SEBI committee on delisting of securities, Mr P. Krishnamurthy, has given a written submission that CII does not subscribe to the committee's views that a reverse book-building process will bring about a more efficient price discovery and ensure that the investors get a fair exit price.

The panel had suggested the introduction of a book-building mechanism, which will allow the shareholders to bid to sell on the screen of any stock exchange with nation-wide access.

The highest price at which maximum shareholders would be willing to sell should be the offer price.

The committee took the view that the reverse book-building process would provide a transparent, fair and reasonable mechanism for pricing of shares and ensure investor participation in the whole process of delisting.

The CII representative, among other reasons, held that the process of reverse book-building was prone to manipulation as it would operate on a restricted audience, unlike an IPO which is open to the general public.

"This raises doubts about the efficacy of the concept of a limited universe, since it is not a free market and hence makes the process prone to manipulation'', the CII submission said.

Further, the chamber held that any open offer for delisting should indicate the price that the buyer is willing to pay.

"The reverse book-building requires generating offers from the sellers (shareholders) who have no indication of the buyer's intention - on the price that the buyer is willing to pay for the strategic value of the company. The only indication that the shareholders have is 26 weeks average. This asymmetry of information places the shareholders at a distinct disadvantage, which may cause them to peg their offer at a low price, particularly in weak markets'', CII said.

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