You must have heard in the news that Vedanta company is about to be delisted from the stock exchange. And if you have shares in such a company, then your concern is justified. But, is this process really a matter of concern for any investor? For this, we need to know the whole process.
What is the Delisting of Shares in the Stock Market?
Delisting of shares in the stock market is a process in which the shares of a company are removed from stock exchanges for public trading. That means the company will not be available for trading on the stock exchange from now onwards. It can be seen as the reverse process of an Initial Public Offering (IPO), where a private company becomes public. But in the case of the Delisting of the company, it becomes private from the public.
But, If the shares of a company are delisted from one stock exchange and continue to trade on another, it is not considered to be delisting. The company’s shares will be delisted from all stock exchanges, making it a private entity completely, then only this process will be marked as complete delisting.
Types of Delisting
Delisting of the company from the stock exchange can be done at the request of the company itself or by the regulatory body because of noncompliance with norms. Hence, Delisting is categorized into two types; Voluntary and Forced Delisting.
Delisting can be voluntary by the company itself or else it can be forced to delist from the exchange. When a company decides that its shares will no longer be traded on the stock exchanges, it is voluntary delisting. On the other hand, when a company is forced to stop trading due to bankruptcy, performance issue, or failure to comply with stock exchange regulations, it is called involuntary/forced delisting.
In the case of voluntary delisting, there can be many reasons for companies to take this route. This may be because of the reason that the company has been acquired or merged with another entity, or it may be a decision by investors or some other factor that makes it beneficial for the company to go private.
Effects of Delisting
Delisting is not considered very beneficial for companies because of many reasons. Because delisting completely removes the option of raising funds in the form of equity from the public through the stock market. Then also, some companies choose to delist for their own internal reasons. But in the case of compulsory delisting from the stock exchange, the company has to undergo delisting from the stock exchange.
What happens to your shares when a company’s stock gets delisted?
It is the common and first question that arises in the mind of investors when they listen to the word ‘delisting‘.Delisting has a direct effect on the investments of the shareholders of a company. If you are holding the shares of a company that has been delisted, you don’t have to worry at all. Whether the company is public or private, if you own its shares, you still own the ownership of that company. But post the delisting of the company from the exchange, you cannot sell the shares on the public market through trading platforms, but you are still left with other options.
In case of voluntary delisting, there are two ways to offload your shares:
1. The company is bound by the regulator (SEBI) to give you the option to sell the shares back to the company in a reverse book-building process. The promoters of the company shall announce and communicate the same to the public for this buyback of shares or send a letter to the investors with effect from the same date. The price of the shares will depend upon the valuation of the company.
If you want to sell your shares, you can do so. Eligible shareholders can offer their equity shares through their stock brokers. But, in case any investor who has not participated in the reverse book-building process can offer his share to the promoters at the same exit price. Typically, this window is available for one year from the close of the delisting process.
2. Another option is to look for an over-the-counter buyer. There must be someone interested in the company who may want to own the shares of the company even if it is delisted and become a private entity. You can negotiate a deal with such a buyer and sell your holdings.
If the minimum limit of the share buyback is not met, the delisting will fail, and the company will continue to be listed on the stock exchanges. If a company is forced to delist its shares by the regulator, it must buy back the shares from its shareholders. An independent valuer will ascertain the floor value of the shares as per the delisting regulations.
Can a delisted company get listed again on the exchange?
Yes, a delisted company can be listed again on the stock exchanges. The Securities and Exchange Board of India (SEBI) has mandated that there should be a minimum period of three years between the delisting and relisting date of the company.
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Whether a company is forced to delist or taking voluntary delisting, there will always be an option for you as an investor to sell your shares and exit from the holdings of that company. SEBI has ensured that investors are not put to loss in case of delisting.