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The number of multinational companies planning to delist from the Indian bourses is expected to grow this year. Around 140 companies were seen as drawing up plans, merchant bankers said. The top 119 MNCs have a market capitalisation of Rs 95,876 crore (Rs 958.76 billion).
This will deal a blow to the Centre's plan to allow Indian companies and individuals to invest in equity overseas. Indian investment in the equity of foreign firms is predicated on their holding at least a 10 per cent stake in a company listed in India.
What had been a trickle during the previous years became an avalanche in 2002 when nearly 100 companies either commenced delisting proceedings, or de-listed from Indian stock exchanges. This number was 16 in 2001, eight in 2000 and six in 1999.
One of the main reasons for MNCs delisting is the disproportionately high charges they have to shell out to remain listed, especially in the light of new stringent corporate governance and disclosure norms.
According to one merchant banker, the annual cost of regulatory expenses alone ranges between Rs 20 crore (Rs 200 million) and Rs 30 crore (Rs 300 million). "Raising private capital is much easier," he pointed out.
The other reason is that the government has relaxed investment restrictions for foreign companies and has allowed them to set up 100 per cent subsidiaries in India.
Among the 140 companies that are waiting in the wings for delisting, a good number are in the benchmark indices widely tracked by the market.
The equities market has also been in the grip of a prolonged bear phase and this is what the multinationals are cashing in on -- cheap exit prices.
Incidentally, though the Securities and Exchange Board of India board has approved a reverse book-building scheme for de-listing, this has yet to be officially notified and the companies are still using the six-month average price for delisting.
Sebi has also said that once the reverse book-built method is notified, companies should not use buybacks to delist, a prevalent custom now.
According to an estimate, with the exception of Hindustan Lever and ITC, if all the listed companies decide to buy back their shares and delist, they will have to pay only around Rs 20,000 crore (Rs 200 billion).
Citing an example, a merchant banker said: "Look at Coca-Cola. It wants to be in India, but listing on the country's stock markets is not among its list of priorities. It has been consistently stonewalling the Indian government's efforts to get it listed."
According to a report in the Wall Street Journal, Coke, with plenty of access to capital, feels that it is not worth the hassle of being listed in India, even though it is being made to sell part of its equity in the country. Rather than list its shares on the Indian bourses, the company has agreed to sell 49 per cent of its Indian subsidiary to local investors.
Recently, Cadbury announced its delisting from the bourses. The company has created a lot of wealth for its Indian shareholders: its capital appreciation over the past 10 years has been of the order of 20 per cent a year compared with the Sensex's 6 per cent a year.
According to merchant bankers, multinationals do not need the capital and so staying listed makes little sense. A considerable number of MNCs are in the area of fast moving consumer goods and pharmaceuticals, which provide a good hedge against volatile cyclicals.
The MNCs have also been the largest wealth creators for Indian shareholders. Among those that have de-listed or are in the process of delisting are Cadbury, Carrier Aircon, Otis Elevator, Wartsila India, Ciba Speciality Chemicals, Kodak and Atlas Copco.