What is Delisting of Shares?
The act of withdrawing securities from a stock exchange is known as “delisting” of shares. Delisting, for instance, occurs when a company decide to withdraw their stock from the stock exchange and make them no longer tradeable.
Types of delisting a company’s shares
Voluntarily Delisting of Stocks:
It is known as voluntary delisting of shares when a company deliberately removes all of its shares from the stock exchange, rendering them inaccessible for trading. shareholders are compensated for returning their shares, and the company delists the entire shares from the stock market.
When a company is purchase its own company stocks by an investor who wants to own a majority stake in the business, voluntary delisting may take place. If the aggregate shareholding of the acquire business and the shares presented by public shareholders equals 90% of the total share capital, the transaction is termed successful.
When a company delists voluntarily, eligible shareholders submit their equity shares through a stockbroker, providing information about the specific shares they wish to tender in response to the delisting offer.
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Compulsory Delisting of Stocks:
Involuntary or forceful delisting of shares occurs when a regulatory authority forces a company to remove its shares from the market. A company must undergo mandatory delisting if it doesn’t follow the rules established by the stock market.
A company’s shares are delisted for six months if they have been traded irregularly over the previous three years. Additionally, a company’s shares be forcibly removed from the stock exchange if their net worth is negative as a result of significant losses during the previous three years.
Difference Between Voluntary & Compulsory Delisting of Stocks.
In a voluntary delisting, a company chooses to take its stocks off of a stock exchange, whereas in a compulsory delisting, the shares of a company are taken off of a stock exchange as a sanction for failing to submit information or otherwise comply with various listing agreement requirements within the allotted time frames.
Effects of Voluntarily Delisting
The acquirer notifies all of the shareholders in writing of the buyback.
Shareholders receive a bidding form in addition to the notification.
The acquirer makes an offer to shareholders, who can then decide whether to accept it and withdraw their investment.
The Effects of Compulsorily Delisting
Using a predetermined price or a price established by an authorized body, acquirers or promoters make an offer to acquire back shares from the current shareholders. This approach, like the prior one, has no impact on a shareholder’s ownership of the business. But with this approach, once the company is delisted, the value of its shares might decrease.
Opportunities For Investors During The Delisting of A Company’s Stocks.
Delisting voluntarily in which the exit price is established via the RBB procedure- The shareholders must make a bid at a price that is on or above the floor price, which is computed in according to the rules. A public shareholder’s bid would serve as the foundation for determining the exit price. The promoter pays the investors that price so they can exit if the promoter is ok with the exit price that has been determined.
The promoter pays the investors that price so they can exit if the promoter is OK with the exit price that has been determined.
Investors might choose to sell their shares to the promoters if they choose not to take part in the RBB process. It is required of the promoters to repurchase the shares at same exit price.
*RBB – Reserve Book Building
A Company Can Relist Its Shares After Delisting ?
If the company gets SEBI’s approval and complies with its rules, a delisted share may be relisted. Five years must pass from the delisting date before shares that were voluntarily removed from the market can be relisted. A corporation must wait ten years before being relisted on exchanges if it was delisted forcibly.
Permission is given for the relisting of delisted shares under SEBI regulations following a Five-year cooling-off period. When the application for listing was made, the relevant listing criteria were taken into consideration. The Central Listing Authority will also examine the application.