What happens when a company gets delisted from stock markets?
You may have heard of Vedanta Ltd.’s plans of delisting from stock exchanges in 2020. While the company’s attempt to delist failed, the initial announcement raised concerns about the investors and their shares in the company. This article will go through some of the significant aspects of delisting shares.
What is delisting?
Delisting is a process in which shares of a company is removed from the stock exchanges for public trading. It can be thought of as the reverse process of an IPO, whereby a public company goes private.
Additional read: What is an Initial Public Offering?
If a company’s shares are removed from only one stock exchange and continue to trade on another, it is not considered delisting. The shares of the company have to be removed from all the stock exchanges, making it a completely private entity.
Delisting can be voluntary or involuntary. When a company decides that its shares will not be traded anymore on the stock exchanges, it is voluntary delisting. While, when a company is forced to stop trading because of bankruptcy, company performance or failure to comply with stock exchange regulations, it is termed as involuntary delisting. In case of voluntary delisting, there could be many reasons for companies to take this route. It can be because the company has been acquired or merged with another entity, or it could be investors’ decision or any other factor that makes it beneficial for the company to go private.
Usually, delisting is not very beneficial to companies. It eliminates the possibility of raising funds in the form of equity from the public market. However, some companies still choose to delist for internal reasons. In the case of compulsory delisting, the company has no choice to exercise on its removal from stock exchanges.
What happens to your shares when a company’s stock gets delisted?
Delisting has a direct impact on the shareholders of a company. If you hold shares of a company that got delisted, there is no need to panic. Whether it is public or private, if you own shares, you still are an owner of the company. While you cannot sell the shares in the public market, you still have other options.
In case of voluntary delisting, there are two ways to offload your shares:
1. The company is obliged to give you an option to sell the shares back to it in a reverse book building process. The company’s promoters or investors will make a public buyback announcement or send a letter to the same effect to investors. The price will depend upon the valuation of the company. If you wish to sell your shares, you can do so. Eligible shareholders may tender their equity shares through their stock brokers. Any investor who has not participated in the reverse book building process can offer their share to the promoters at the same exit price. Usually, this window is available for one year from the closure of the delisting process.
2. The other option is to look for an over-the-counter buyer. There may be interested parties in the market who may want to own the company’s stocks, even if it is private. You could negotiate a deal with such a buyer and offload your holdings.
If the minimum limit of share buybacks is not met, the delisting will fail, and the company will continue to be listed on stock exchanges.
If a company is forced to delist its shares, it must buy back the shares from its shareholders. An independent evaluator will ascertain the floor value of the shares as per delisting regulations.
Can a delisted company list again?
Yes, a delisted company can be relisted on stock exchanges. The Securities and Exchange Board of India (SEBI) has mandated that there has to be a minimum duration of three years between delisting and relisting.
Whether a company delists out of choice or is forced to delist, there will always be an option for you as an investor to offload your shares. The SEBI has ensured that investors don’t suffer in the case of delisting.
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