Many times we hear about companies wanting to get listed on the stock exchanges. The reverse of this can also happen and it is termed as delisting.
Recently, Sintex Industries has been in the news for potential delisting. Reliance and Assets Care & Reconstruction Enterprise (ACRE) submitted a bid for acquiring Sintex industries and the Committee of Creditors (CoC) of Sintex Industries has accepted the bid. Reliance-ACRE have proposed that post the acquisition, they will delist the shares of Sintex Industries.
Let’s understand what happens if a company delists and you still own shares from that company.
Delisted shares refer to the shares of a listed company that have been removed from the stock exchange permanently for buying and selling purposes.
That means delisted shares will no longer be traded on the stock exchanges – National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). The process of delisting securities for any company is governed by the market regulator, Securities, and Exchange Board of India (SEBI).
Delisting of shares can be voluntary or involuntary, depending on the reason for delisting.
A listed company’s shares get delisted from exchange for various reasons. These include insufficient market capitalization, a company filing bankruptcy, and failure to comply with exchange regulatory requirements.
If a company is delisted, you are still a shareholder, to the extent of a number of shares held. And yet, you cannot sell those shares on any exchange.
However, you can sell it on the over-the-counter market. This means you can look for a buyer outside the stock exchange.
In a financial sense, each type of delisting of shares – voluntary and involuntary delisting – will impact the investor who owns these shares.
Let’s understand this better.
In the case of voluntary delisting, listed companies voluntarily opt for permanent removal of securities from the stock exchange where the company decides to go private.
Mostly, mergers with another company, amalgamation, or non-performance are a few reasons for voluntarily delisting. If you own a stock of the company that has opted for voluntary delisting, the company is required to give you two options as per the delisting guidelines laid out by SEBI:
Promoter or acquirer will buy back the shares through a reverse book building process. Promoters are required to make a public announcement of buyback by sending out a letter of offer to eligible shareholders and a bidding form.
In this case, you, as an eligible shareholder can exit by tendering your shares. The final price is decided based on the price at which the maximum number of shares has been offered.
When the shares tendered by the shareholders reach the specified limits, delisting is considered successful.
The company shall remain listed in case the limit specified is not met.
If you have not sold your shares in the reverse book building process or during the exit window period, you can still hold them till you find the buyer on the over-the-counter market.
The delisted share can be hard to sell as there will be no buyers. However, when you wish to sell in the over-the-counter market, all you need is patience. It can take a long time to find the buyer who is willing to buy at the desired price.
When a company voluntarily opts for delisting with some expansion reasons, the company usually offers its investor a buyback at a premium price, which can result in a significant gain.
However, it’s important to note that it’s just a temporary opportunity for investors to gain. Once the buyback window closes, the price of the stock is likely to drop.
Let’s take Vedanta’s example to understand this.
Vedanta is an Indian multinational company with its main operations in iron ore, gold, and aluminum mines. The company’s share touched a peak of around Rs 330-340 levels at the start of 2021.
In May 2021, the company came down to levels of Rs 88-89 per share. The indicative Vedanta delisting offer price was Rs 87. That does not mean that the company will buy the shares from its shareholders only at this price.
Companies have to go for special voting, and shareholders including retail shareholders can also participate in the same. As shareholders disagreed on the valuation of the company, Vedanta failed to delist.
Involuntary delisting refers to the forced removal of listed company shares from the stock exchange for various reasons including non-compliance with the listing guidelines, late filing of reports, and low share price.
In this case, promoters are required to buy back the shares at the value determined by an independent evaluator. Though delisting does not affect your ownership, shares may not hold any value post-delisting.
Thus, if any of the stocks that you own get delisted, it is better to sell your shares. You can either exit the market or sell it to the company when it announces buyback.
Decisions taken with a careful and prudent analysis of the situation can help you achieve your long-term investment goals.
Well, yes. A delisted stock can be relisted only if SEBI permits it. The market regulator lays out different guidelines for relisting such shares.
The list of delisted stocks can be found on the websites of BSE and NSE. A few of delisted companies are:
|Company Name||Date of delisting||Reason|
|Pradip Overseas||16-Mar-22||Voluntary Delisting|
|Dewan Housing Finance Corporation||29-Sep-21||Voluntary Delisting|
|Gujarat NRE Coke||24-Sep-21||Liquidation|
|JVL Agro Industries||3-Sep-21||Liquidation|
|Hind Syntex||3-Sep-21||Compulsory Delisting|
|Shri Lakshmi Cotsyn||27-Aug-21||Liquidation|
|Jaihind Projects||16-Jun-21||Voluntary Delisting|
|Baba Agro Food||5-Mar-21||Voluntary Delisting|
Simply put, there are no benefits of delisting from a stock exchange. There are certain regulations and compliances that a listed company has to follow. This includes compulsorily publishing its financial statements and quarterly reports and conducting AGM every year within a time period.
While some of these norms may not apply to unlisted companies, it doesn’t necessarily benefit such companies. For instance, Vedanta’s reason for delisting was that the Covid-19 pandemic has hurt its business, and going private will give it more operational and financial stability to run its business.
In the case of Sintex Industries, Reliance mentioned that as per the Resolution Plan of Reliance Industries Limited jointly with Assets Care & Reconstruction Enterprise Limited it is proposed that the existing share capital of the company will be reduced to zero and the company will be delisted from the stock exchanges i.e. BSE and NSE.
We hope you found this article informative.