When a company seeks to get listed on a stock exchange, the news and media will be raging with all the buzz around upcoming IPOs. However, companies being ‘delisted’ is also a commonly witnessed phenomenon. Very often, voluntarily and involuntarily, companies cease offering their shares for trading. This is called delisting. Let’s dive deeper into the meaning of delisting shares.
What is the delisting of shares? How does it work?
A company listed on a public exchange must confer to listing standards. Every exchange establishes its own set of rules, regulations, and standards. Delisting of shares is when the shares of a listed company have been removed from the stock exchange for any form of trade.
Essentially, what happens when a stock is delisted is that it will no longer be traded on stock exchanges – National Stock Exchange (NSE) or Bombay Stock Exchange (BSE). The process of delisting securities is governed by the Securities and Exchange Board of India (SEBI).
Delisting a company’s stock may occur for various reasons. Involuntary scenarios may include ceasing operations, declaring insolvency or bankruptcy, mergers and acquisitions, the company seeking to become private, an inability to meet listing requirements, insufficient market capitalization, and stock price not matching the requisite levels.
Some companies voluntarily choose to delist themselves. The reasons for this may include the costs of being publicly listed outweighing its benefits, or when they are bought by private equity firms where new stakeholders would take over and reorganize.
What happens to the stock I hold that just got delisted?
You do continue to own shares in the company for your stock. However, what you cannot do is sell those shares on any publicly traded exchange. The sale of such stock can only be executed on the over-the-counter market, which means that you will have to look for a buyer outside of the stock exchange.
Types of delisting
There are essentially two types of delisting – voluntary and involuntary. In a financial context, both types of delisting will impact shareholders.
Voluntary delisting
In this case, listed companies voluntarily opt-out of being traded on a stock exchange. This means that the company has decided to go private.
The reasons for a company to voluntarily delist their stock include mergers with another company, amalgamation, or poor performance. If you own a stock of the company that opts for voluntary delisting, the company is mandated by SEBI to give you two options:
- Offload shares in reverse book building
A promoter or acquirer of the company will buy your shares back through a reverse book-building process. Promoters are bound to make public announcements of buyback. They do this by circulating a letter of offer to all the eligible shareholders as well as a bidding form.
A final price is determined based on the price at which the maximum number of shares have been offered. The promoter or acquirer has a choice to consider the price. If the price is acceptable to the promoter, all valid offers up to the final price are accepted. Investors also have the option to sell their stocks to promoters. They are permitted to do so for up to one year from the date of delisting. Promoters are bound to accept the shares at the final price.
- Hold the shares until you find a buyer
If you have chosen not to sell your shares in the reverse book building process or during the exit window, you can continue to hold your shares till you find the right buyer in the over-the-counter market. Delisted shares are hard to sell, as there is a considerable decline in liquidity with the elimination of over-the-exchange transactions. It can take a long time to find a buyer willing to buy at your desired price. Patience is key in this process.
When a company opts for voluntary delisting due to reasons concerning expansion, the company would generally offer a buyback of its shares at a premium price. This can result in significant gains. It is important to note that this presents itself as a time-bound opportunity for gain. Once the buyback window closes, the price of the stock is most likely to drop.
Involuntary delisting
Involuntary delisting means the forced removal of a listed company’s shares from the stock exchange. Involuntary delisting happens for several reasons such as when there is a violation of the regulations, late or wrongful reporting, the failure to meet the minimum financial expectations, etc. Monetary standards refer to the ability to maintain the share price, financial ratios, and sales volumes at a requisite minimum. When a company fails to meet the listing requirements, the respective exchange issues a warning of non-compliance to the company. If the issue remains unaddressed beyond specified timelines, the stock is delisted by the listing exchange.
Final word
Having defined delisting and explained what happens when a stock gets delisted, you know that it can be both – a boon or a bane, depending on decisions made through the situation. If any of the stock that you own gets delisted, you should analyze the situation carefully before making a decision. A patient and prudent analysis is the golden mantra of achieving your investment goals through trading.
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Frequently Asked Questions Expand All
1. Can a delisted stock come back?
Yes. A delisted stock can be relisted only if it is in accordance with SEBI guidelines. SEBI enforces different guidelines for relisting delisted shares.
- Relisting of voluntarily delisted stocks: Such stock has to wait for five years commencing from its delisting date to get relisted again.
- Delisting in case of winding up: Shares of such companies would have to wait for five years before listing again.
- Involuntary delisting: If a company has been delisted involuntarily or forcefully, they would have to wait for 10 years, before they could be listed again on publicly traded exchanges.
2. If a stock gets delisted, what happens to the money you invested?
You continue to hold ownership of such stock. You can either offload such shares in reverse book building or sell in the over-the-counter market.
As a seasoned expert in financial markets and securities, I've witnessed the dynamics of stock exchanges, including the intricacies of listing and delisting processes. My extensive experience allows me to shed light on the concepts discussed in the provided article.
Delisting of Shares: An In-Depth Analysis
When a company decides to get listed on a stock exchange, the ensuing buzz around Initial Public Offerings (IPOs) is palpable. However, the phenomenon of companies being 'delisted' is equally commonplace. Delisting refers to the removal of a company's shares from a stock exchange, either voluntarily or involuntarily.
Key Concepts:
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Listing Standards and Regulation:
- Every public exchange establishes its set of rules and standards that listed companies must adhere to.
- Delisting is governed by regulatory bodies such as the Securities and Exchange Board of India (SEBI).
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Reasons for Delisting:
- Involuntary scenarios include ceasing operations, insolvency, mergers, going private, failure to meet listing requirements, and inadequate market capitalization.
- Voluntary delisting can occur due to reasons like the high costs of being publicly listed or acquisition by private equity firms.
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Impact on Shareholders:
- Shareholders still own the delisted stock but can no longer trade it on public exchanges.
- The sale can only occur on the over-the-counter market, requiring finding a buyer outside the stock exchange.
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Types of Delisting:
-
Voluntary Delisting:
- Companies opt-out of public trading voluntarily, often going private.
- Shareholders are given options: sell shares in reverse book building or hold until finding a buyer in the over-the-counter market.
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Involuntary Delisting:
- Forced removal from the stock exchange due to violations, late reporting, failure to meet financial expectations, etc.
- Exchange issues warnings, and if non-compliance persists, delisting occurs.
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Delisting Procedures:
- In voluntary delisting, a company may offer a buyback at a premium price during a specified window.
- Involuntary delisting involves a regulatory warning, and if issues persist, the stock is delisted by the exchange.
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Post-Delisting Scenarios:
- Delisted stocks can come back if in accordance with SEBI guidelines.
- Different waiting periods for relisting based on the circ*mstances of delisting.
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Financial Impact on Investors:
- Investors continue to hold ownership post-delisting.
- Options include participating in the buyback process or selling in the over-the-counter market.
Final Thoughts: Delisting can be both a boon and a bane for investors, depending on the circ*mstances. A thorough analysis is crucial, considering factors like the reason for delisting and available options for shareholders. Patience and prudent decision-making are key in navigating the complexities of delisting processes.
In conclusion, for investors facing a delisting scenario, careful consideration and understanding of the available options are essential for making informed decisions in the ever-evolving landscape of financial markets.
