When a company gets listed on stock exchanges through the IPO process, they may not stay listed permanently. Owing to several factors such as internal changes, market, and environmental conditions, or even due to the health of the business, the company may stay listed on one exchange or multiple exchanges or may get delisted. When a company delists, it will no longer be available on the stock market for share purchase and thus its securities get removed.
What is delisting?
Deslisting is a process in which a company is offboarded from one or more stock exchanges. Such companies go from being public listed companies to private companies once again.
Reasons why companies delist from a stock exchange
- Companies may choose to voluntarily delist.
- Regulatory factors could also play a part in the delisting of a company.
- If the company is struggling with their operations, it could get delisted or voluntarily delist.
- If the business gets impacted due to fluctuating market prices. A good example for this is the sudden drop in petrochemical prices we witnessed last year.
- Project payments getting delayed or stuck in the market.
- Delayed commissioning of projects.
- Other factors that could lead to the delisting of the company include bankruptcy, mergers, non-compliance during listing, etc.
- The need to become a private company once again due to overshooting costs of staying publicly listed.
What happens to stocks held by shareholders after a company gets delisted?
Suppose shareholders purchase and hold stocks of a company that has been delisted. They will continue to hold ownership in the company based on the number of shares they own. However, the shareholder won’t be able to sell these stocks either on the BSE or the NSE.
Additionally, he/she is free to approach an over-the-counter market to sell them to a buyer outside the stock exchanges.
SEBI regulations and guidelines for delisting
The Securities Exchange Board of India has laid out certain guidelines and regulations for delisting companies. As per Section 5.1 of SEBI’s Delisting of Securities Guidelines, 2003:
- A delisting company removing its securities from a stock exchange can only do so if they have been listed for a minimum period of 3 years on any exchange.
- The delisting company must provide an exit opportunity for its investors.
- The delisting company shall determine an ‘exit price’ that’s in accordance with the ‘book building process’ mentioned in clauses 7-10 and 13-14.
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Owing to several factors such as internal changes, market, and environmental conditions, or even due to the health of the business, the company may stay listed on one exchange or multiple exchanges or may get delisted.
Takeaways for retail investors
Delisting is not the be all and end all for a company’s time in the stock market. There is also a process called ‘relisting’ where a previously delisted company files for a fresh IPO and is listed back on the stock exchange. Several prominent, well-known companies have successfully relisted after a brief delisting.
For investors, delisting of a company is a profitable time if you have the right strategy. Investors can achieve huge gains by targeting companies about to delist because when the company relists, the shares are bought back at a premium price. Delisting is also an opportunity to purchase shares at the NSE and BSE at cheap rates amidst the urgency of liquidity. Even while investing in delisting companies, thorough research and strategy are necessary for an investor.
