We often have heard and seen about companies Delisting their shares or Relisting their shares. If you are not sure about what delisting of shares is or why companies go for delisting, you have come to the right place. We are attempting to answer all your questions here.
A company gets delisted from the stock exchange when they no longer want to offer their shares for trading or when they are no longer available for share trading is what we call Delisting of shares. This happens when the company has difficulty in operating. After the shares are made unavailable for trading the company then becomes a private company.
Delisting is the process of removing the shares of a company from the stock exchange so that the shares are made unavailable for the people to trade. It also means dismissing the company from the stock exchange. But, if the shares of the company are listed in more than one stock exchange and then get removed from any one of the stock exchanges, then it is not considered as delisting. So, if all the shares of a company are removed from all the exchanges, then the company is delisted from the stock exchanges.
A company gets delisted due to several reasons. The reason why the company gets delisted can be grouped into mainly two categories.
Certain companies would want to privatize their company. So in such a case, they voluntarily step aside. These companies remove all their shares and make their shares unavailable for trading. Before the company pulls out, they have to make sure that they pay their shareholders in exchange for all the shares they hold.
Usually, a company decides to go private/voluntarily delist when they have plans to change the entire structure of the company or when they decide to expand. This occurs when the organization is acquired by an investor who desires a majority share in the company. In some other cases, they may find it difficult to for the benefits of the public are outweighed by the costs.
While a company decides to delist, it cannot just leave the stock exchange as they decide. Instead, they have abide by the rules and regulations set by the Securities Exchange Board of India (SEBI). One such rule that every company had to follow is that the company has to be listed in the stock exchange at least for 3 years before they decide to exit from the stock exchange. So when a company finds it difficult to obey the rules prescribed by SEBI or if such rules are a hindrance to their functioning, then they decide to go private.
It is also necessary to have the approval of shareholders before a company decides to voluntarily delist itself. However, if the shareholders do not agree to delist, the process may take years and months to complete.
2.Involuntary or Compulsory Delisting
Involuntary or Compulsory delisting is when a company is forced by a regulatory authority, such as SEBI, to delist its shares and stop trading. There may be several reasons why the shares of the company are involuntarily compulsorily delisted. In some cases, compulsory delisting is used by the regulatory authority as a means to penalize the company.
The following are some of the reasons for delisting of a company involuntarily:
One of the reasons for the delisting of shares is when the company fails to follow or obey the rules and regulations set by the exchange.
When the shares are inconsistently traded for three years, then they get delisted for at least six months.
Bankruptcy or huge losses that have posted losses in the past three years, then the company gets delisted.
The above-mentioned are a few of the reasons for the delisting of shares in India. Now that we are aware of what delisting of shares is and the reasons for delisting, we shall look into an interesting fact about the delisting of shares.
Delisting as an investment strategy.
Certain companies use delisting as an investment strategy. In the year 2010, the government of India made it compulsory for the companies that are trading in the stock exchange to at least make a minimum of 25% available for the general public. This paved the way for companies to delist their securities that had promoters owning more than 75% of the company. This led the investors to aim for companies whose promoters have at least 80-90% shares in the company.
List of Companies that got delisted recently
Alfa Laval was delisted from the BSE on April 19th, 2012. This was a voluntary delisting according to the SEBI regulations 2009.
On 31st December 2014, Liberty Phosphate Delisted from the BSE as the company decided to merge with Coromandel International Ltd.
Kinetic Motor Company Limited merged with Kinetic Engineering Limited and got delisted on May 17th, 2013.
Nirma was Voluntarily Delisted from BSE on 28th March 2012 according to the SEBI regulations 2009.
These are a few of the companies that got delisted from the stock market both voluntarily and involuntarily. What happens to my shares if a stock is delisted?
A stock gets delisted either because the company decided to go private or because the company was forced to delist from the stock exchange. So, once the stock is delisted you will only have a limited time to sell your shares before they get converted into cash or exchanged for the shares of the acquiring company at an exchange price that is previously determined. Why do shares get delisted?
Shares get delisted for several reasons, be it voluntary or involuntary. In the case of voluntary delisting, the company voluntarily steps aside and removes all its shares from trading. However, if a company fails to obey the rules and regulations of the regulatory authority, if the shares are inconsistently traded, or if the company goes bankrupt, then they get delisted involuntarily.
Can I sell delisted shares?
Even though some brokerages restrict such transactions, you can generally sell a delisted stock the same way you sell a stock that is traded on a stock exchange.
What happens after delisting?
After a stock is delisted, they are no longer available for trading. Either they get converted into cash exchanged for the shares of the acquiring company at an exchange price that is previously determined.
Can a Delisted Stock Come Back?
On a theoretical basis, a delisted stock can be relisted on a stock exchange, but it happens very rarely. Some companies would have voluntarily Delisted from the stock market and may not have any plans to get relisted soon. Other countries was may be forced to delist themselves as they went bankrupt or for other reasons. In that case, these companies will have to solve the issue that caused the delisting so that they become compliant with the exchange’s standard.
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Disclaimer: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. It is for educational purposes only.For more information, see our Legal disclosures here.