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Business News/ Market / Stock-market-news/  Firms providing delisting services get a boost as Sebi alters norms

Firms providing delisting services get a boost as Sebi alters norms

The biggest beneficiaries of changes in delisting norms will be the calling agencies which work on behalf of merchant bankers and acquirers

Photo: MintPremium
Photo: Mint

Mumbai: Ranjit Ghosh once assembled a temporary workforce of 800 people. No, the occasion was not a product launch or a marketing campaign. The team was gathered together to help in the delisting of a large listed company from the stock exchanges, which had almost 350,000 retail shareholders. Delisting means the permanent removal of securities of a listed firm from a stock exchange.

But what does Ghosh have to do with delisting, you may ask? Ghosh is the managing director of Indianet Marketing Services Pvt. Ltd, a firm that provides a key service to merchant bankers running delisting offers. Indianet helps bankers reach out to the thousands of shareholders of the company, so that the investors are made aware of the delisting, which in turn ensures that a requisite number of retail investors tender their shares, thereby allowing the company to delist.

These niche and often unheard-of service providers are expecting a surge in business after the capital market regulator announced new norms for delisting.

On 22 January, as part of a revision to delisting guidelines, the Securities and Exchange Board of India (Sebi) said, “...if the acquirer and the merchant banker are able to demonstrate that they have contacted all public shareholders about the offer in the manner prescribed, then the condition of mandatory participation of 25% of the public shareholders holding shares in demat mode would not be applicable."

The biggest beneficiaries of this provision will be the calling agencies which work on behalf of merchant bankers and acquirers to reach out to people as the new norms impose an obligation on the acquirer and the merchant banker to demonstrate that they have reached out to all public shareholders, said a banker working with a domestic investment bank who did not wish to be named as he is not authorized to speak to the media.

Typically, merchant bankers reach out to institutional shareholders and some high net worth individuals, but it is practically impossible for merchant bankers to reach out to all retail shareholders, added the banker quoted above.

To help out in the process of reaching out to retail shareholders, bankers seek help from companies like Indianet.

These companies work on different fee models. Some charge a lump sum based on the number of shareholders to be contacted, while others charge a fee for every call. Additional address verification fee is charged if shareholders are not reachable on phone. In some cases, there is an incentive based on the outcome of the delisting offer.

Ghosh has been running this service since 1998. He hires a temporary workforce every time he is approached by a merchant bank. This workforce is entrusted with the task of tracking down each and every retail investor based on contact information such as telephone numbers and addresses available with the depositories. His people then go door to door, informing investors of the upcoming delisting offer.

“It is very gruelling work," said Ghosh.

Despite improvements in technology, very little has changed since he started providing this service in 1998, says Ghosh, as the accuracy of contact information is still a major challenge.

“We have always seen that most of the addresses are incorrect, phone numbers are also not reliable," he said, adding that even in cases where addresses are correct and information has been sent via post, he has seen that almost 30-40% of the people are still unaware of the delisting offer.

Mayank Lunawat, head of investment banking (equity) at Think Capital Pvt. Ltd, is another person involved in providing this niche service.

Lunwat started this practice at Think Capital two years ago and has been handling 10-12 delisting offers a year. “We run shareholder awareness programmes, which means reaching out to the retail shareholders to inform them about the delisting offer to ensure higher participation," he said.

At Think Capital, Lunawat has a team of eight permanent employees who are trained in all regulatory aspects of a delisting offer. He hires more people on a temporary basis, depending on the number of shareholders he has to reach out to. Think Capital also manages helpline numbers where retail shareholders can call and learn details about the delisting offer.

The biggest delisting he has been involved with required him to reach out to almost 50,000 shareholders. Unlike Indianet, Think Capital does not go door to door, but contacts shareholders over the phone.

Sebi’s new norms will definitely increase business for his firm as now all companies will have to hire such services to reach out to all their shareholders, said Lunawat.

However, according to J.N. Gupta, founder, Stakeholders Empowerment Services, a proxy advisory firm, one needs to wait for the final guidelines to see what Sebi actually means when it says that companies have to reach out to all shareholders—whether it means postal communication, electronic communication, etc. “Also, we will need to see how this communication will be complied with and audited," he said.

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Swaraj Singh Dhanjal
" Based in Mumbai, Swaraj Singh Dhanjal is responsible for Mint’s corporate news coverage. For the past eight years he has been writing on the biggest deals in private equity, venture capital, IPO market and corporate mergers and acquisitions. An engineer and an MBA, he started his journalism career in 2014 with Mint. "
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Published: 02 Feb 2015, 12:37 AM IST
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