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.
The recently, Vedanta was one of the companies that tried to delist. Vedanta, which was trading on both the exchanges applied for voluntary delisting of its shares from the share market. One of the reasons for the company to consider delisting is to simplify its complex business structure.
Thought the delisting of Vedanta has failed, let’s understand what happens if a company delists and you still own shares from that company.
What is it?
Delisted shares refer to the shares of a listed company that has been removed from 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 of 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.
What happens to the shareholders?
If a company is delisted, you are still a shareholder, to the extent of 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, merger 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:
1. Offload Your Shares in Reverse Book Building
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 shareholders 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. In the case of Vedanta, the shareholders demanded higher valuation. While the promoter was trying to exit cheap.
2. Hold Till You Find a Buyer
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 into mining and mainly focuses on iron ore, gold, and aluminum mines. The company’s share touched a peak of around Rs 330-340 levels at the start of the year.
In May, the company has come down to levels of Rs 88-89 per share. The indicative Vedanta delisting offer price is Rs 87. That does not mean that the company will buy the shares from you 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 gets delisted, it is better to sell your shares. You can either exit in the market or sell it to the company when it announces buyback.
Decisions taken with the careful and prudent analysis of the situation can help you achieve your long-term investment goals.
Can a Delisted Stock Come Back?
Well, yes. A delisted stock can be relisted only if SEBI permits it. The market regulator, lays out different guidelines for relisting of such shares.
- Relisting of voluntarily delisted stocks: Such shares will have to wait five years from its delisting date to get relisted again.
- Compulsory delisting: If a company has been delisted compulsorily, they will have to wait for 10 years before they can be listed again on the exchanges.
The list of delisted stocks can be found on the websites of BSE and NSE. A few of delisted companies are:
|Security Code||Full Name||Date of Delisting||Reason|
|505052||CLUTCH AUTO||14 Feb 2020||Procedural Delisting|
|506985||Twilight Litaka Pharma Limited||14 Feb 2020||Procedural Delisting|
|507870||Lloyds Finance Ltd.,||14 Feb 2020||Procedural Delisting|
|509627||Hindustan Dorr-Oliver Ltd.||14 Feb 2020||Procedural Delisting|
|509992||UB Engineering Ltd||14 Feb 2020||Procedural Delisting|
|512199||CORE Education & Technologies Ltd||14 Feb 2020||Procedural Delisting|
|517140||Moser-Baer (India) Ltd.,||14 Feb 2020||Procedural Delisting|
|523592||Jenson & Nicholson (India) Ltd.,||14 Feb 2020||Procedural Delisting|
|532778||LANCO INFRATECH LTD.||14 Feb 2020||Procedural Delisting|
|532786||GREAT OFFSHORE LIMITED||14 Feb 2020||Procedural Delisting|
|532793||Shree Ashtavinayak Cine Vision Ltd||14 Feb 2020||Procedural Delisting|
Do Companies Benefit from Delisting Their Stocks?
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 for unlisted companies, it doesn’t necessarily benefits such companies. For instance, Vedanta reasons for delisting was that Covid-19 pandemic has hurt its business and going private will give it more operational and financial stability to run its business.
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