By: Aanchal Nagpal
"Behind every stock is a company. Find out what it’s doing" - Peter Lynch
What is Delisting in the stock market?
A listed security is delisted when it is taken off a stock exchange. When a business shuts down, files for bankruptcy, merges, fails to meet the listing requirements or decides to go private, a security may be delisted, either voluntarily or involuntarily. Before a company gets listed on an exchange, it must adhere to strict criteria referred to as "listing standards." The requirements and restrictions for listings are established by each exchange, such as the Bombay Stock Exchange. Companies that don't adhere to the minimum requirements imposed by an exchange will be delisted without their consent. The most widely used standard is cost. For instance, a company that consistently has share prices below one rupee per share runs the risk of being delisted. In contrast, a company can voluntarily request to be delisted.
What is the difference between voluntary delisting and compulsory delisting?
In a voluntary delisting, a company chooses to take its securities off of a stock exchange. In contrast, in compulsory delisting, the securities of a company are taken off of a stock exchange as a sanction for failing to submit information or otherwise comply with various listing agreement requirements within the allotted time frames.
What is the impact of delisting on shares?
A stock that has been delisted may still be traded over the counter. Trading costs and bid-ask spreads are likely to be greater on over-the-counter markets because they lack the liquidity that the major exchanges provide. Aside from these drawbacks, the delisting itself frequently erodes investor confidence. Institutional investors and investment banking analysts may quit monitoring the company if it is unable to get listed again.
However, obtaining pertinent information may be more difficult for individual investors. Additionally, over time, they have a tendency to lose interest in over-the-counter equities, which further reduces the trading volume.
How do investors get impacted by share delisting?
For investors, delisting a company's shares implies being unable to sell such shares on any stock exchange. A shareholder who purchased such shares will still be the legal owner of those shares and may trade them outside of stock exchanges. An investor in a delisted firm can receive their money back in the following ways:
1. Impact due to voluntary delisting
In case a company voluntarily delists its shares, a shareholder can sell their shares to an acquirer via the reverse book-building process. In this case:
All the shareholders get an official intimation about the buyback from the acquirer.
Along with the intimation, shareholders are sent a bidding form.
Shareholders get an offer from the acquirer, post which they can choose to exit the investment by accepting the offer.
Shareholders can also refuse the offer and remain invested in the shares. In case a shareholder does not sell the shares to the acquirer within the time frame, they can sell them through the over-the-counter market. However, since the liquidity of the share goes down, selling it through the over-the-counter market may be time-consuming.
Once the desired number of shares are bought back by the acquirer, share delisting is successfully completed.
2. Impact due to involuntary delisting
Using a predetermined price or a price established by a third party, acquirers or promoters make an offer to current shareholders to repurchase their shares. The ownership of a shareholder in the firm is unaffected by this procedure, just like the previous one. When a firm gets delisted using this approach, the value of its shares could decrease.
In the event that a firm delists its shares from all Indian stock exchanges other than the BSE and NSE, it is not necessary to provide shareholders with an exit value because the shares will still be tradable on these markets. As a result, stockholders may sell their shares at any moment on the BSE or NSE.
Procedure for Delisting shares under BSE
If any company wants to undergo delisting, the followings are to be followed:
1. Formal application from the company on their proposal on delisting from only BSE.
2. Resolution of the Board of Directors approving the proposed delisting.
3. Public Notice for proposed delisting as per Regulation 6(1)(c) of SEBI (Delisting of Equity Shares) Regulations 2021. 4. Certificate of continuous listing of other Recognised Exchanges.
5. All pending fees payable to BSE are to be paid (if any). 6. Compliance with pending investor grievances (if any) received at BSE. 7. Processing Fees of Rs. 12,50,000/- (Rupees Twelve Lakhs fifty thousand) plus applicable taxes.
Can you claim loss/sell your delisted shares?
The equity shareholder, who typically receives nothing, is the one who goes through a procedure to get a claim or loss IBC. In accordance with the resolution plan, NCLT typically orders the partial or complete extinction of the company's share capital. Therefore, if your shares are extinguished by an NCLT order, you lose all rights to them, and the extinguishment amount that transfers under the Income Tax Act gives you the ability to recover these losses. If the company in which you invested falls into voluntary liquidation and the shares are cancelled, you may also be able to recover damages on your investment.
Examples of some delisted shares
Benefits of Delisting the shares
Reduced accounting, regulatory, and governance costs.
Fewer liability risks.
Greater freedom to pursue long-term growth — rather than focusing on short-term profits to appease investors on Wall Street.
Disadvantages of Delisting of shares
A private company cannot raise funds from public markets.
When a company delists, it can lose public trust—market share can shrink.
It can also negatively affect the book value of the company.
Delisted stocks undergo considerable devaluation. Shareholders end up losing investment value.
Conclusion
Delisting could have a negative impact on both the company and the shareholders. There is a sizable chunk of investment involved, particularly in the case of stockholders. Analyze the firm carefully and only invest your money with it after it meets all the requirements to ensure you aren't parking your money with a risky business.
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