LAHORE - Pakistani regulating authorities should consider the Indian rules on de-listing in order to attract foreign investors, according to which if the majority shareholders want to go over 90pc, they must run a de-listing process which requires a reverse-auction by.

Equity experts believe that current inaction by SECP over request of foreign firms against delisting of multinational companies will result in removal of Pakistani bourses from foreign investors’ priority list.

In the reverse auction, the minority shareholders offer their shares at the price of their choosing. Then, the majority shareholder has the choice to de-list at whatever price the greatest absolute of shares have been offered by the minorities.

This is a nice process because it takes into account the views of the minorities and requires that a negotiation takes place between the parties, said an expert, adding that formulating regulations on this Indian benchmark could be a great help to shareholders in Pakistan since Pakistani regulating authorities lacking much in it.

It should be noted that recently a subsidiary of a giant multinational company for Pakistan has applied for de-listing, which is against the interests of all constituencies including the stock-markets and the country.

According to a legal analysis of this de-listing proposal of the company, it is against the interest of minority shareholders as sections 30-B and 30-D of the Listing Regulations of the Karachi Stock Exchange (Guarantee) Limited, which contain the procedures for de-listing, do give the Exchange a great deal of discretion to protect the interests of minority shareholders, said Intazar Mahdi advocate, Executive Secretary, the Law Society.

The regulations further state ‘30-B Voluntary de-listing of a security shall be subject to the approval of the proposal in general meeting of the company by not less than 3Ž4 of the security holders present in person or by proxy at such general meeting, and compliance by the company with the prescribed procedure, guidelines/criteria and other terms and conditions as may be laid down by the Exchange.

The Exchange (Stock Exchange) may for any reason whatsoever refuse to accept the proposal of the company, the purchase price and/or the request to de-list the securities, as that last sentence of Section 30-B gives the Exchange a great deal of latitude.

The last sentence clearly indicates an intent on the part of the drafters of the Regulations that the Exchange should be the guardian and watchdog of the interests of the minority shareholders, and should refuse to accept the proposal of a company when it is unfair to the minority shareholders – even if the company has technically complied with the procedures and guidelines for de-listing, as described in clauses (i) and (ii) of Section 30-B,’ he added.

It is clear that this last sentence was designed to prevent a company from accumulating 75pc of the shares of a company listed on the Karachi Stock Exchange and then squeezing out the minority shareholders by technically complying with the procedures and guidelines of the regulations.

Moreover, Section 30-D of the regulations makes it clear that the ultimate decision on the price of the securities in a de-listing is not determined by the company seeking to de-list from the Exchange, but is in fact determined by ‘the Board on its own or on the basis provided that any member of the Board and/or Special Committee holding 2pc or more shares of the company applying for voluntary de-listing will not participate in the deliberations while the case of the company is considered by the Board/Committee.”