By DK Aggarwal
Share delisting is the removal of a listed stock from a stock exchange platform, and thus it would no longer be traded on the bourse. In simple words, delisting means the permanent removal of a stock from stock exchange. The delisting of a security can be either voluntary or involuntary. In case of involuntary delisting, no opportunities are left for investors. Bankruptcies, failure to maintain the requirements set by the exchange, takeovers or mergers, stock performance are key factors that often lead to delisting.
Now, the big question is: What happens to the money that we have invested in the stock, when a company gets delisted? In voluntary delisting, when a company willingly decides to remove its shares from the stock exchange and it pays shareholders to return the shares held by them and removes the entire lot from the exchange.
In case of voluntary delisting, the delisting shall be considered successful only when the shareholding of the acquirer together with the shares tendered by public shareholders reaches 90% of the total share capital of the company. The promoter of the company is not allowed to participate in the process and the floor price is decided based on a reverse book building process.
Eligible shareholders may tender the equity shares through their respective stock brokers by indicating the details of the equity shares to be tendered under the delisting offer during the normal trading hours of secondary market. Those investors fail to participate in the reverse book-building process have the option of selling their shares to the promoters. The promoters are under an obligation to accept the shares at the same exit price. This facility is usually available for a period of at least one year from the date of closure of the delisting process.
Let us understand this with the example of Essar Oil. The company has announced delisting of its share from the exchange after its takeover by Rosneft and set a floor price of Rs 146.05, but at the time the final discovered price came, Oil Bidco (Mauritius), the promoter of Essar Oil, agreed to pay Rs 262.80 a share, an 80 per cent premium to the floor price. Of the 1,425 crore shares held by public shareholders, the promoters acquired 1,010 crore shares through the offer, against the requirement of 926 crore for the delisting to be successful. The stock was trading at around Rs 100 in June 2014, when the delisting was announced. Shareholders tendered their shares between December 15 and December 21, 2015, through the reverse book-building window made available to them under the delisting regulations. The company then applied for final delisting to the stock exchanges.
After the formal approvals came, the shares were formally delisted. Thereafter, an exit window of one year was made available to the remaining shareholders to tender their shares at the delisting price.
Thus, a voluntary delisting does not happen overnight. Investors get ample time to offload their stocks. If an investor continues to hold on to the shares post delisting, she will continue to have legal and beneficial ownership and rights over the shares that she holds.
In the case of involuntary delisting, the delisted company, whole-time directors, promoters and group firms get debarred from accessing the securities market for 10 years from the date of compulsory delisting. Promoters of the delisted companies are required to purchase the shares from public shareholders as per the fair value determined by an independent valuer.
Source: Economic Times