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Most investors are aware of the listing process on stock markets, but fewer are aware of what happens when firms withdraw from the stock exchange. Delisting occurs when a company withdraws its securities from trading platforms and halts public trading. When this occurs, shareholders are left with delisted shares, raising doubts about their value, liquidity, and future prospects for investors.
Key Takeaways
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Delisting removes companies' shares from stock markets.
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Investors exit primarily through SEBI-regulated exit mechanisms such as reverse book building or fixed-price offers.
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Post-delisting, shares may trade only on limited OTC/dissemination platforms with very low liquidity.
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Relisting is allowed only after a minimum cooling-off period of 3 years as per SEBI regulations.
What Do You Mean By Delisting?
Delisting occurs when a company voluntarily or compulsorily removes its equity shares from all recognised stock exchanges. Once the company is delisted, its shares won’t be available for public buying and selling on recognised exchanges such as NSE and BSE.
A listed company can get itself delisted for a number of reasons, like insufficient aggregate value of the company (based on the current share price and the number of outstanding shares), bankruptcy, a change in the company structure, etc. Read on to understand the types of delisting.
Types Of Delisting
Below are the types of delisting that happen in the Indian stock market:
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Voluntary Delisting
As a voluntary delisting, companies that are listed opt to withdraw their securities permanently from the stock exchange when they go private. This most commonly occurs through mergers, restructuring of businesses or poor performance in the financial arena.
Within voluntary delisting, there are two operative routes under current SEBI regulations:
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Exit Via the Reverse Book Building (RBB) Route: The promoters declare a buyback and invite investors to receive shares at desirable rates. Final price is determined at the price at which promoter shareholding reaches 90% or required threshold. Delisting is successful only when the promoter holding limit is met.
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Hold Till You Find a Buyer: When shares are not sold in a buyback, the investors can sell them out later privately, usually through OTC or dissemination board platforms, but liquidity is extremely limited, and buyers are scarce.
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Exit Via the Fixed Price Route: A newer option offered through regulatory revisions, in which the firm or acquirer offers a predetermined exit price at least 15% higher than the calculated floor price, providing shareholders with transparency and simplifying the pricing method.
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Compulsory (Involuntary) Delisting
Compulsory delisting is enforced by a recognised stock exchange or regulator (SEBI) when a company fails to comply with statutory and listing obligations. This is not initiated by the company’s management but is a regulatory action to maintain market integrity.
In compulsory delisting, exit price is determined by an independent valuer appointed by exchange.
Also Read: What is a Shareholder?
What Happens To Shareholders Of The Delisted Company?
When a company's shares are delisted from exchanges such as the NSE and BSE, they no longer trade on recognised stock market platforms. However, shareholders continue holding their shares in the corporation. Delisting doesn't eliminate ownership; it only eliminates the opportunity to trade shares through the standard exchange process.
Shareholders are given controlled exit alternatives based on whether the delisting is voluntary or compulsory. Hence, shareholders could:
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Tender shares in the SEBI-mandated exit offer (RBB or set price in voluntary circumstances, fair value in obligatory cases).
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As the proprietor of an unlisted corporation, you will hold the shares.
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Sell shares later on OTC/dissemination platforms, when liquidity is constrained, and buyers are scarce.
Ownership is unaffected, but liquidity and price discovery are hindered upon delisting.
Also Read: What is OTC Options?
Can Delisted Shares Be Listed Again?
Shares can be relisted only if they meet the guidelines set by the market regulator.
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Voluntarily Delisted Stocks: Such shares must wait a minimum cooling-off period of 3 years from the date of delisting before applying for relisting, as per SEBI Delisting Regulations.
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Compulsorily Delisted Stocks: These companies are also subject to regulatory review and a cooling-off period, generally aligned with the 3-year rule, along with stricter scrutiny before relisting approval.
Do Companies Benefit From Delisting Their Stocks?
Delisting reduces regulatory burdens but exposes firms to less scrutiny, aiding restructuring amid financial distress. Companies listed on an exchange face stricter regulatory requirements, such as reporting financial results and holding annual meetings. On the other hand unlisted company with delisted stocks does not have as many regulatory responsibilities, but this does not assure growth and stability.
Many companies choose to delist from the exchange to gain greater flexibility when they are experiencing financial difficulties or in the process of reorganising/ restructuring, by allowing them to make decisions internally without market pressure.
Conclusion
Delisting transforms the way investors engage with a company and its shareholding. Following a trading halt, shareholders dispose of delisted shares through a buyback or private sale, depending on the type of delisting. Although the ownership is not changed, liquidity becomes limited, and the prices are unpredictable. Knowledge of exit strategies, risks, and relisting schedules helps investors preserve value and make decisions after delisting.
