Reliance Demerger as Backdoor Delisting

I wrote an article in today’s Financial Express about the Reliance demerger.

In January 2006, Reliance Industries Limited demerged four companies accounting for about a quarter of its market capitalization. The delay in listing these new companies means that about a quarter of the original company (representing a market value of over $7 billion) have been effectively delisted since January 18, 2006.

This has three consequences

1. Millions of shareholders in these companies cannot trade these shares.
2. The corporate governance provisions regarding independent directors and investor protection do not apply to these companies.
3. These companies are under no obligation to provide the continuing material event disclosures to the exchange that a listed company is required to provide.

The result is that a company with a million shareholders is subject only to the disclosure and governance regime that applies to a mom and pop company with a dozen shareholders.

I argue that the exchanges and the regulator should not look at the listing of the demerged companies through the framework of initial public offerings that are obviously designed to make it difficult for a company to list. Rather they should use the framework of the delisting guidelines which are designed to make it difficult for a company to delist. The situation in a demerger or delisting is that the public has already put in its money and the regulator’s priority is to ensure that the company does not slip away from the clutches of the listing regulations.

Posted at 6:36 pm IST on Mon, 13 Feb 2006         permanent link

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