“Stock Delisting” is a term that means removing stocks of a listed company from the stock exchange. As a consequence of delisting, the stock will no longer be traded at the stock exchange.
A listed company’s shares could get delisted from the stock exchange for various reasons, including insufficient market capitalization, bankruptcy, and failure to comply with exchange regulatory rules.
How does delisting affect a shareholder?
When a company gets delisted, the shareholders remain the owner of the shares. However, they will no longer be able to sell them on exchange. Instead, they will have to do so over-the-counter-market. The share value does not automatically rise or fall with a delisting. Stock delisting can be voluntary delisting or involuntary delisting.
During voluntary delisting, a company’s board decides on its own to remove its listing from a stock exchange, after which the company either chooses to go private or get listed on another stock exchange.
Voluntary delisting can be done for a number of reasons like:
- The amalgamation of two different companies.
- Reduce decision-making time.
In India, the company, before getting delisted from the stock exchange, is required to give its shareholders two options as per the delisting guidelines laid out by SEBI:
- Reverse Book Building process: The promoters or the acquirers of the company buy back the shares from the shareholders through the reverse book building process. Promoters make the repurchase public by distributing an offer letter and a bidding form to eligible shareholders. Eligible shareholders can exit by tendering in their shares. The final price is decided based on the maximum price in which most of the shares are offered.
- Holding: When the shares get delisted, it means you can’t sell the shares on NSE or BSE. However, you still hold ownership of the shares and can sell outside the stock exchange. These trades are made over-the-counter-market. When a firm decides to delist for business reasons, it usually offers its shareholders a repurchase at a higher price, resulting in a considerable profit.
Involuntary delisting happens when a listed company is forcefully removed from the stock exchange for various reasons, including late report submission, not meeting regulatory guidelines. In such scenarios, the promoters must buy back the shares at a value determined by an independent evaluator. Even yet, an involuntary delisting is frequently a warning that a company is on the verge of bankruptcy. There is a danger that investors will lose money in this situation.
Few Indian delisted companies
- Alfa Laval (Voluntary delisting)
- Allied Resins And Chemical Limited ( Amalgamation)
- Aqualand (Involuntary delisting)
So what are the benefits of delisting?
Simply put, delisting from a stock exchange has no advantages. A publicly traded corporation must adhere to specific rules and regulations. This involves releasing financial statements and quarterly reports on a regular basis and holding an annual general meeting (AGM) every year within a specific time frame.
- Removal of stock from the exchange is known as stock delisting.
- Delisting can occur voluntarily or involuntarily.
- The shareholder will still remain the owners of the share and can also sell them over the counter market once delisted.