Delisting

Delisting can directly affect your ability to sell shares. If you own such shares, understand the exit process before taking a decision.

• Delisted shares stop trading on exchanges.
• Selling shares may become more difficult.
• Investors may receive an exit opportunity.
• Delisting can be voluntary or compulsory.
• SEBI rules govern the delisting process.
• Delisted shares do not become worthless.
• You may continue holding delisted shares.

Suppose you bought shares for your savings. One day, those shares stop trading on the stock exchange. You can no longer simply open your trading account and sell them there. This is called delisting.

Delisting means a company’s shares are removed from a stock exchange. After this, investors cannot normally buy or sell those shares through that exchange.

For example, suppose you own 100 shares of ABC Ltd. If ABC Ltd. gets delisted, those 100 shares still belong to you. However, selling them can become more difficult because they are no longer traded on the stock exchange.

Delisting does not automatically mean that the company becomes a private limited company.

A company’s shares may be delisted for different reasons.

• Public to private: A company may want to reduce public ownership. When shares are first offered through an IPO, public investors can buy part of the company. Delisting can form part of a plan to reduce this public ownership.
• Merger: A company may merge with another company. As part of the merger, its existing shares may be delisted. What shareholders receive depends on the merger terms.
• Cost reduction: A listed company must follow various listing and compliance requirements. These involve costs. A company may choose to delist to reduce these costs.
• Improving corporate governance: Delisting may give promoters greater control over business decisions because the company no longer has to meet the same requirements that apply to listed companies.

There are mainly two types of delisting: voluntary and involuntary.

Voluntary delisting

Voluntary delisting happens when a company itself decides to remove its shares from the stock exchange.

For example, suppose a company wants to reduce public ownership or merge with another company. It may choose voluntary delisting.

When a company voluntarily delists its shares from all recognised stock exchanges, public shareholders receive an exit opportunity under the Securities and Exchange Board of India (SEBI) delisting regulations.

This gives shareholders a chance to sell their shares as part of the delisting process.

Involuntary delisting

Involuntary, or compulsory, delisting happens when a recognised stock exchange removes a company’s shares.

This can happen when the company repeatedly fails to meet applicable listing or compliance requirements.

The process follows SEBI regulations.

For example, suppose a company keeps failing to meet required listing conditions. The recognised stock exchange can take action and compulsorily delist its shares.

This is the most important part if your money is already invested.

If your shares are delisted, you do not automatically lose ownership of them. The shares still belong to you.

However, you can no longer sell those shares normally through the stock exchange after delisting.

What happens next depends on the type of delisting.

If the company voluntarily delists, the acquirer provides an exit opportunity to public shareholders under SEBI's delisting regulations.

The exit price can be decided through reverse book building or, where permitted, a fixed-price process.

In reverse book building, shareholders state the price at which they are willing to sell their shares. The final exit price is then determined according to SEBI rules.

SEBI also permits a fixed-price route for eligible voluntary delisting. Under this route, the fixed delisting price must be at least 15% above the applicable floor price.

For example, if the applicable floor price is ₹100, a 15% premium would mean a fixed delisting price of at least ₹115.

If you do not sell your shares during a successful voluntary delisting offer, eligible remaining public shareholders can still tender their shares to the acquirer at the same exit price for at least one year from the date of delisting, as provided under SEBI regulations.

In compulsory delisting, SEBI regulations require promoters to provide an exit opportunity to public shareholders. An independent valuer determines the value of the shares according to the applicable rules.

You may also choose to continue holding the shares.

Remember, delisted shares do not automatically become worthless. Their value can still exist. The main problem is that selling them becomes more difficult because they are no longer traded on the stock exchange.

If a share you own gets delisted, do not assume that your money has become zero. You still own the shares, but selling them can become harder. Check whether the delisting is voluntary or compulsory. Understand the exit price and the available selling window before taking a decision. Knowing how delisting works can help you avoid confusion and make a better decision when a company whose shares you own leaves the stock exchange.