Delisting of Shares and Its Impact on Shareholders

We often hear the news that a company is going to be listed in the stock market and soon the shares of the same are likely to float in the stock market. Nevertheless, the converse is also true. i.e Just like the listing, delisting also happens.

Many times it happens that companies want to stop offering shares in the stock market. The process of removal of securities of a listed company from the stock market is known as delisting as a result of which the securities of that particular company would not be traded in the stock market.

If a company is delisted from the stock exchange, it means that no one can buy or sell its shares.

In future also, the companies will no longer be traded on the stock exchanges - BSE and NSE. The whole process of delisting shares for any company is conducted by SEBI.

Many companies have recently been delisted from the stock exchange. For instance, Dhani Services Ltd, Dewan Housing Finance Corporation Limited, BSEL Infrastructure Realty Limited and more.

Reasons for Delisting of Shares

There are a variety of reasons a company gets delisted from the stock exchange including lack of market capitalization, M&A, insolvency, inability to comply with exchange regulatory criteria and more.

Have you ever thought about what will happen to your shares if a company gets delisted? Even though you hold a strong position in the company’s stake, you are no longer eligible to sell those shares in the stock market.

However, you can sell the shares on an over-the-counter market. It means that you can find a buyer outside the stock market.

In a financial sense, any type of delisting of shares whether voluntary and involuntary will heavily impact the investors who own these shares.

Here, we will try to figure out what will happen to investors’ shares if the company get delisted. Can the same company come back after delisting, what are the advantages of delisting from the stock exchange and more?

Let’s take a quick tour with the type of delisting:

Voluntary Delisting

A company undergoes voluntary delisting if a promoter of a listed company wishes to delist the shares from the stock exchange permanently. In other words, by deciding for the permanent removal of securities, the company decides to go private.

The primary reasons for the delisting of shares are mergers or amalgamation, and non-performance of the company in the share market.

If you purchase the shares of the company that is likely to go for voluntary delisting, the company gives you two options as per guidelines of the Security and Exchange Board of India. Here are the options:

1. Get Rid of Your Shares Through Reverse Book Building

Reverse book building is a process through which the promoters or acquirer will buy back shares.

To bring back their shares, promoters are required to make a public notice of repurchase by sending a letter of offer to eligible shareholders along with the bidding form.

In such cases, eligible shareholders can seek this as an advantage to exit by tendering their shares through respective stockbrokers. Here, the final price is decided based on the maximum number of shares offered.

The promoter will have an option whether to consider or ignore the price. If the promoter accepts the price, all valid offers up to the final price are accepted.

Delisting is considered successful only if the shares tendered by the public reached the limits specified by the regulators. The company will remain listed in case the limit specified is not met.

The remaining investors will have an option to sell their shares to the promoters as they accept the shares at the same final price. The investors can do this up from the date of delisting.

2. Hold Until You Find a Suitable Buyer

If you haven't sold back your shares during the reverse book building process, you can still hold the shares until you find the right buyer. It's difficult to sell the shares as there will be a decline in liquidity without any over the exchange transactions.

Finding the right buyer who will buy the shares at the desired price will take some time. When a company decides to delist its shares for commercial purposes, the company offers its investors a buyback at a higher price that will result in higher profits.

Involuntary Delisting

Involuntary delisting involves the forced removal of listed company shares from the top stock exchanges because of several reasons such as late filing of the report, non-compliance with the listing guidelines, low stock price and more.

In the case of involuntary delisting, the promoters can buy back the shares at the share value determined by the independent evaluator. Although delisting does not affect the ownership of your shares, company shares will hold zero value after delisting.

Delisting can turn out to be again for some investors, however, for others, it will be considered as a pain depending on the prevailing situation.

Therefore any stock you hold, if get delisted, it is important to go through the circumstances and analyze the situation carefully. Make your decisions only after analyzing the situation where to sell or hold them in the long run.

The right decision taken with utmost care and a complete analysis can help you achieve your objectives for the long term investment.

Is it Possible for a Company to Come Back After Getting Delisted From the Exchanges?

Can a delisted stock be listed again? The answer is yes.

SEBI comes with different guidelines for relisting shares according to how they were relisted.

In the case of compulsory delisting, you will have to wait five years from their delisting date to get relisted again.

Takeaway

Delisting a company from the stock exchange will never receive any sort of benefits. There are certain regulations that a listed company has to follow such as publishing its financial statements and quarterly reports and conducting AGM.