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. Let us understand what is delisting of shares and what are its consequence for an investor.
The equity shares of Sintex Industries Limited (SINTEX) were delisted and were not available for trading w.e.f 22nd March 2022. The entire share capital of Sintex Industries Limited was written off as part of the Insolvency resolution process. The shareholders were not allowed to sell their holdings in the stock post being delisted.
What is Delisting
Delisting of shares refers to the removal of a publicly traded company’s stock from a stock exchange. A company can choose to delist its shares voluntarily if it wants to go private or merge with another company. A company might have to involuntarily delist its shares if it fails to meet the exchange’s listing requirements or violates the exchange’s rules.
Delisted shares will no longer be traded on the stock exchanges. The process of delisting securities for any company is governed by the market regulator, Securities, and Exchange Board of India (SEBI).
Reasons for Delisting
A listed company’s shares get delisted from exchange for various reasons, some of which are as follows:
- Insufficient market capitalization
- a company filing bankruptcy
- failure to comply with exchange regulatory requirements.
- Company Acquisition
- Company wants to go private
Delisting because of Company Acquisition (M&A)
A company can choose to delist its shares voluntarily if it wants to merge with another company. Mergers and acquisitions (M&A) are the catalysts that redefine the business landscape, ushering in a new era of growth, innovation, and competition. India, with its rapidly evolving economy, has witnessed numerous M&A deals like IDFC First Bank and IDFC Limited, Adani and NDTV Group, Axis Bank and Citi Bank and the one big one - HDFC and HDFC Bank.
Challenges for Shareholders
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.
However, there could be a drop in liquidity compared to the other approach. If shareholders continue to hold the shares after delisting, they will be the legal and beneficial owners of the shares.
Before delisting, the company must usually provide notice to its shareholders and the exchange. Shareholders may fi nd it difficult to sell their shares or may have to sell at a significant discount if the shares are delisted.
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 such shares.
Relisting of voluntarily delisted stocks: Such shares will have to wait five years from their 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.
List of Delisted Stocks
The list of delisted stocks can be found on the websites of BSE and NSE. A few of delisted companies are:
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
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 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.
SEBI Delisting Regulations
To know more about the delisting rules and regulations, you can refer to the SEBI guidelines for the same. Click here to read the SEBI guidelines on delisting.
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