Concept of Reverse Book Building
It is a process of book building used when the shares of a company are delisted from Stock Exchanges. This concept is conceptualised in SEBI (Delisting of Equity Shares) Regulations 2009 which provides a comprehensive framework for delisting of equity shares.
Special provisions have been provided in case of voluntary delisting of small companies. Equity shares of such companies may be delisted without following the reverse book building process.
Under Reverse book building investor bid for a price at which they will sell their shares to promoters, whereby the company would be delisted. In order to delist the company promoters should accept and buy minimum 90% of total outstanding capital (i.e. paid up equity share capital). for this purpose investors are asked to bid. For this purpose they are provided with a base price (which is ascertained as per Takeover Code) and investors are asked to bid at any price above this price. Whether to submit the bid or not is the choice of investor. The base price is communicated to shareholders through letter of offer. The letter of offer is prepared by Merchant Banker and is vetted by SEBI.
The investors bids are arranged in a chronological order and the bidder at highest price is accepted, provided at that price company is able to acquire minimum no.of shares (i.e. 90%)
the above thing is explained as follows:
Please refer December 2017 CMSL CS executive paper Q1)a):
Now to delist the shares the promoter needs to acquire atleast shares worth Rs 90,00,000. Out of this already he has shares worth Rs 75,00,000. So now he needs to acquire additional shares worth Rs 15,00,000.
The question has given the bidding data.Bidding is done at a price above Rs 550. Rs 550 is the base price determined as per Takeover Code. Hence bidding is done above Rs 550. Any bid below Rs 550 is rejected.
Now promoter should decide a price at which he has to take shares. As per Delisting regulations promoter should select the price at which maximum shares are tendered. In this question maximum shares are tendered at Rs 625. Once he selects the price he shall select all offers that are below Rs 625 but that should fetch him a minimum of 15,00,000 shares.
Whatever price he selects it should be able to fetch him minimum shares worth Rs 15,00,000. So if the promoter decides to accept shares at Rs 625 then he would get all 25,00,000.
So the price determined as per reverse book building is Rs 625. This price promoter cannot change once he accepts it and all the shares for which bidding is done at a price below this are accepted.
Now the shareholders who have bidded for shares at a price above this can tender their shares at this price within one year from the date of closure of offer.