An Overview
You may have heard of corporations delisting their shares. Delisting of shares from the NSE/BSE is as true as listing on them. This occurs when a company's shares are no longer available for trading. Let's take a closer look at what it means to delist shares and what happens to delisted shares.
What Is Delisting Of Shares?
It happens whenever a business decides to withdraw its shares from the stock exchange and make them not anymore tradeable. The company becomes a private company after the share is no longer accessible for trade. If a company's shares are listed on many stock exchange platforms and are removed from only one of them, this is not called delisting. Delisting is the removal from all stock exchanges that prevents people from trading.
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What Are The Different Types Of Delisting?
Delisting is classified based on the types of reasons that lead to delisting.
Involuntary Delisting
Involuntary delisting occurs when a firm is ordered by a regulatory authority to delist all of its shares and cease trading. There could be a variety of reasons or conditions that cause the company's shares to be delisted involuntarily. The following are some of the causes for involuntary share delisting:
- When the shares have traded inconsistently during the last three years, the securities are delisted for six months.
- When a firm fails to comply with the exchange's requirements, it may face compulsory delisting.
- If a company's net value is not positive due to major losses over the previous three years, its shares are delisted involuntarily.
Voluntary Delisting
As the name implies, when a firm decides to withdraw all of its shares and make them inaccessible for trading. In this case, the corporation must pay all shareholders in exchange for all of their shares. A corporation enters voluntary delisting when the company's complete structure changes. This can happen if the organisation is bought by a shareholder who wants a majority stake in the firm. Another cause could be exchange rules, which could impede the company's operations. To prevent impeding the company's operations, it may opt to delist all of its shares.
How To Sell Delisted Shares In India?
If the firm voluntarily delists, the account holder will have one year to approach the RTA (Registered Transfer Agent) and tender the shares via an offline process. The corporation must honour the delisting price. If the firm has been delisted for more than a year, the shareholder might approach the company and negotiate a private sale of the shares to the promoters. This will be an off-market transaction, with the price agreed upon by the seller and buyer.
The account holder can also re-materialize the shares by transforming them from electronic to printed form. They must approach their DP (Depository Participant) with a re-materialisation request for each firm in which they own a stake. However, re-materialisation will not take place if the corporation does not reply, which is common when a company is delisted unwillingly. In such instances, the customer can use a delivery instruction slip to transfer the balance to a separate demat account.
There may also be occasions where an investor owns shares in a non-listed firm through ESOPs or a demerger from a listed entity. Only through off-market transactions can the investor get rid of such shares. These investors can contact specialised brokers who deal with unlisted shares.
Wrapping Up
In 2010, the government made it mandatory for organizations to make at least 25% of their shares available for trading to the general public. As a result, promoters who own more than 75% of the securities were delisted. More investors are looking for companies where the promoters own 80-90% of the stock. This was done to maximise profits if the promoter decides to purchase back shares at a higher price.
Aside from big returns, investors can use delisting as an opportunity and strategy to purchase shares of delisted businesses on the NSE/BSE at a lower price since investors are desperate for liquidity. Also, investors should keep in mind that delisting is a lengthy process, so only invest if you are confident that the company will meet the 90% criterion. If that is not likely, you should put those funds to better use in other investing strategies.
As an expert in financial markets and securities, I bring a wealth of knowledge and experience to shed light on the intricacies of corporate actions, particularly the delisting of shares. Throughout my years of involvement in the financial industry, I have closely followed and analyzed various cases of delisting, staying abreast of regulatory changes, market dynamics, and the impact on investors.
Delisting of shares is a critical event in the life cycle of a publicly traded company. It involves the removal of a company's shares from the stock exchange, rendering them no longer tradable. This transformation is profound, as the company transitions from being publicly traded to becoming a private entity. Allow me to delve into the key concepts touched upon in the provided article.
1. Delisting of Shares: What It Means
Delisting occurs when a company decides to withdraw its shares from the stock exchange, making them inaccessible for trading. The consequence is the company becoming private. Notably, delisting involves the removal of shares from all stock exchanges where they are listed, preventing any further trading.
2. Types of Delisting: Involuntary and Voluntary
- Involuntary Delisting: This occurs when a regulatory authority mandates a company to delist and cease trading. Reasons may include inconsistent trading, non-compliance with exchange requirements, or a negative net value due to significant losses.
- Voluntary Delisting: Happens when a company proactively decides to withdraw its shares. This can be triggered by a change in the company's structure, acquisition by a majority shareholder, or regulatory impediments.
3. How to Sell Delisted Shares in India
- Voluntary Delisting Process: Shareholders have one year to approach the Registered Transfer Agent (RTA) and tender shares offline at the delisting price. After a year, a private sale to promoters can be negotiated.
- Re-materialization: Shareholders can transform electronic shares to printed form through a Depository Participant (DP). If the company doesn't respond (common in involuntary delisting), a delivery instruction slip can transfer the balance.
4. Dealing with Unlisted Shares
- Off-Market Transactions: Investors with shares in non-listed firms can engage specialized brokers for off-market transactions.
5. Government Regulations and Investor Strategy
- In 2010, the government mandated companies to make at least 25% of their shares available for public trading.
- Promoters owning more than 75% were delisted, encouraging investor interest in companies with higher promoter ownership (80-90%).
6. Investor Opportunities and Risks
- Opportunities: Investors can leverage delisting as a strategy to purchase shares at a lower price when liquidity is in demand.
- Risks: Delisting is a lengthy process, and investors should only participate if confident that the company will meet the 90% ownership criterion.
In conclusion, understanding the intricacies of delisting is crucial for investors navigating the dynamic landscape of the stock market. It involves a nuanced process with legal, financial, and strategic considerations that impact both companies and shareholders.
