Abstract 

This case examines the delisting choice of Saint Gobain Sekurit India Limited (“SGSI”), a French-owned Indian company, listed on the BSE Limited (“BSE”). On June 4, 2010, and August 19, 2010, the Indian central government enacted legal amendments, increasing the minimum public shareholding required to be maintained by listed companies to 25%. Companies that were listed on any stock exchange in India as on June 4, 2010 were given until June 3, 2013 to increase their public shareholding to 25%. The French promoters of SGSI, who held 85.77% of the company, faced a difficult choice – should they dilute their own shareholding in the company to maintain SGSI’s listing on the BSE (a legacy from the previous owners of the company) or voluntarily delist from the BSE? On the face of it, continued listing does not provide SGSI with meaningful benefits – they had rarely raised money from the public, and their global profile does not substantially benefit from being listed on an Indian exchange. Further, continued listing meant that Saint Gobain would face dilution costs. On the other hand, delisting transactions could be expensive predominantly owing to the fact that the delisting price is determined by a reverse book-building process that vests significant bargaining power with ordinary shareholders. Further, delisting transactions have been known to be particularly unpredictable for foreign promoted companies in India. The promoters of Saint Gobain had to make an informed decision – whether to dilute (to be) or delist (not to be).

Learning Objective 

The case deals with corporate financing issues in an emerging market setting that deals with the nuances of securities laws and regulations. It can be used in a course on corporate finance/business law/public policy/emerging markets. The key learnings are:

1.  Weighing the tradeoffs between listing and delisting
2. Understanding the “reverse book-building” mechanism used to determine the delisting price.
3. Understanding the role of asymmetric information when issuing equity (stock dilution effect)
4. Valuing a company using market multiples and the discounted cash flow method.