Updated: Oct 21, 2020
By Aaliya Rehman
Delisting implies permanent removal of the company’s shares from the stock market platform. It means that the stocks of the company are no longer listed on BSE and NSE and wants to go private. There are two types of delisting – voluntary and involuntary. Both have significant impact on the shareholders of these companies.
A company voluntarily delists its shares when it wants to purchase all of its shares or merge with another company or is looking for more simplification within the company. When this happens , promoters of the company make a public announcement of buyback through a reverse building process by sending out a letter of offer to eligible shareholders and a bidding form. This offers an opportunity to all the eligible shareholders to exit from the company by offering its shares to its respective brokers. However, the final price is decided at which the maximum number of shares has been tendered. If the promoter accepts the price, all valid offers are accepted at that final price and the trade takes place. Those investors who fail to participate in the reverse book-building process have the option of selling their shares to the promoters. The promoters are under an obligation to accept the shares at the same exit price. The investors are allowed to do this for up to one year from the date of delisting.
For example - Vedanta Resources, a metal and mining company has agreed to buy back the public shareholding at a floor or indicative offer price of Rs 87.50. This price is not the final price. The Company will then require approvals of minority shareholders by way of a special resolution adopted through postal ballot.
If you did not sell back your shares in the reverse book building process or during the exit window period, you can still hold them until you find the buyer on the over-the-counter market. The delisted share can be hard to sell, as there will be a decline in liquidity without any over-the-exchange transactions. However, all you need is patience as it takes time to find the buyer who is willing to but at the desired price.
However , the delisting shall be considered successful only when the shareholding of the acquirer together with the shares tendered by public shareholders reaches 90% of the total share capital of the company.
In the case of involuntary delisting of shares, the delisted company and its promoters barred from accessing the securities market for ten years from the date of compulsory delisting. Involuntary delisting of shares can happen due to several reasons, such as the company becomes bankrupt or fails to meet the compliance standards set by SEBI.
In this case, promoters have to buy back the shares at the value determined by an independent evaluator. In this case, whatever price is offered by company, it’s suggested to take it and close the matter. Involuntarily delisting does not affect your ownership of shares, but shares do not hold any significant value after delisting as they cannot be further traded on a stock exchange platform.
According to SEBI , the company is liable to compensate the security-holders of the company by paying them the fair value of the securities held by them and acquiring their securities, subject to their option to remain security-holders with the company.
For example – Tulsi Extrusions ltd , Pratibha Industries ltd , Zylogs system limited have been compulsory or involuntarily delisted by SEBI around 2015.
Recently Vedanta Limited went for the delisting but it was not successful and it became the third company to make unsuccessful delisting efforts in last two years after INEOS Styrolution and Linde India