Delisting of Shares

1️⃣ Voluntary Delisting – When a company chooses to remove its shares from the stock exchange.
🔹 Reasons: Restructuring, promoter buyout, low trading volume, cost reduction.
🔹 Process: Requires shareholder approval (90% acceptance) and reverse book-building to determine exit price.

2️⃣ Compulsory Delisting – When a company is forced to delist by regulators due to violations.
🔹 Reasons: Non-compliance, fraud, financial irregularities, prolonged trading suspension.
🔹 Impact: Shareholders may lose liquidity; limited exit options; promoters may face restrictions.

Voluntary delisting occurs when a company chooses to remove its shares from a stock exchange on its own, without regulatory enforcement. After delisting, the shares are no longer publicly traded.

Key Reasons for Voluntary Delisting:

✅ Promoters want to increase ownership and take the company private.
✅ Mergers, acquisitions, or restructuring lead to a change in corporate structure.
✅ Low trading volume makes listing less beneficial.
✅ To avoid high compliance costs of being publicly listed.
✅ Parent company of an MNC wants to consolidate operations.

Process of Voluntary Delisting (India - SEBI Guidelines):

1️⃣ Board Approval – Company decides to delist.
2️⃣ Shareholder Approval – Requires 2/3rd majority of public shareholders.
3️⃣ Reverse Book-Building – Determines exit price based on bids from shareholders.
4️⃣ Promoter Buyout – If 90% shareholding is reached, delisting is successful.
5️⃣ Stock Exchange Approval – Final confirmation, and shares are delisted.

Reverse book-building is a price discovery mechanism used in voluntary delisting, where public shareholders bid their selling price, and the final delisting price is determined based on these bids.

Process of Reverse Book-Building:

1️⃣ Company Announces Delisting – Promoters express intent to delist and appoint a merchant banker.
2️⃣ Bidding by Shareholders – Public shareholders place bids on an online platform specifying the price at which they are willing to sell their shares.
3️⃣ Price Discovery – The final exit price is determined based on the price at which promoters acquire at least 90% of the total shareholding.
4️⃣ Acceptance & Payment – If the required shareholding is met, the company buys back shares at the discovered price and delists.
5️⃣ Failure of Delisting – If promoters do not get 90% shares, the delisting attempt fails, and shares remain listed.

If the price discovered through the reverse book-building process is too high, the following scenarios may occur:

1️⃣ Promoters Can Accept the Price – If they agree to pay the high price, they proceed with the delisting by acquiring the required 90% shareholding.

2️⃣ Promoters Can Reject the Price – If the discovered price is too high and financially unviable, promoters may reject the delisting proposal. In this case:

• The company remains listed on the stock exchange.
• Shares continue to trade normally.
• Promoters must wait for 6 months before making a new delisting offer (as per SEBI rules).

3️⃣ Negotiation with Shareholders (Rare Case) – In some cases, promoters may engage with large shareholders to reach a mutually acceptable price before making another attempt.

Compulsory delisting occurs when a stock exchange forces a company to delist due to violations or non-compliance with regulations.

Key Reasons for Compulsory Delisting:

1️⃣ Regulatory Non-Compliance – Failure to comply with listing regulations, such as:

• Not filing financial statements or annual reports.
• Non-compliance with corporate governance norms (e.g., board composition, disclosures).

2️⃣ Failure to Maintain Minimum Public Shareholding – SEBI requires listed companies to have at least 25% public shareholding. Non-compliance can lead to delisting.

3️⃣ Trading Suspension for a Prolonged Period – If trading in a company’s shares has been suspended for a long time due to violations, delisting may follow.

4️⃣ Fraud or Financial Irregularities – If a company is involved in:

• Accounting fraud or misrepresentation of financials.
• Insider trading or market manipulation.
• Misuse of funds or siphoning of money.

5️⃣ Failure to Pay Listing Fees – Companies must pay annual listing fees to stock exchanges. Non-payment for years can result in delisting.

6️⃣ Bankruptcy or Liquidation – If a company is declared bankrupt or undergoing liquidation, exchanges may compulsorily delist its shares.

7️⃣ Non-Operational or Vanishing Companies – If a company ceases operations or promoters disappear, it may be delisted to protect investor interests.

Impact of Compulsory Delisting:

❌ Shares cannot be traded on stock exchanges.
❌ Limited exit options for shareholders (may have to sell in OTC markets).
❌ Promoters may be restricted from re-entering the capital markets.

When a company is compulsorily delisted, shareholders face several consequences:

1️⃣ Shares Can No Longer Be Traded on Stock Exchanges

• The company’s shares are removed from the stock market, making them illiquid.
• Shareholders cannot sell their shares through regular exchange platforms like NSE or BSE.

2️⃣ Exit Option for Public Shareholders (SEBI Regulations)

• Promoters must provide an exit opportunity by buying back shares from public investors at a fair price determined by an independent valuer.
• This price is usually based on financials, assets, and past trading history of the company.

3️⃣ Shares May Trade in the Over-the-Counter (OTC) Market

• Some shareholders may sell shares in the OTC market (off-exchange transactions), but liquidity is very low.

4️⃣ If the Company Goes Bankrupt or Liquidates

• Shareholders may receive nothing if the company is insolvent, as creditors and lenders are paid first.
• If assets remain after debt repayment, shareholders might get some residual value.

5️⃣ Promoters May Face Restrictions

• Promoters and directors of compulsorily delisted companies may be banned from re-entering the stock market for a set period (as per SEBI rules).

Key Takeaways for Shareholders

✅ They may receive a buyback offer from promoters.
✅ Can try selling shares in OTC markets, but with difficulty.
❌ If the company liquidates, they may lose their entire investment.

Yes, delisted shares can still be traded, but not on the regular stock exchanges like NSE or BSE. Instead, they can be traded through alternative methods:

1️⃣ Over-the-Counter (OTC) Market

• Investors can trade delisted shares directly with buyers/sellers through broker networks.
• Transactions are negotiated privately and executed off the exchange.
• Challenge: Low liquidity and price uncertainty.

2️⃣ Trade on the Dissemination Board (DB) (For Compulsory Delisting)

• Stock exchanges provide a Dissemination Board (DB) where delisted companies’ shares can be listed temporarily for trading.
• Buyers and sellers can connect through brokers to trade these shares.
• Challenge: No active price discovery like regular exchanges.

3️⃣ Buyback Offer by Promoters (If Applicable)

• In cases of compulsory delisting, SEBI mandates promoters to offer an exit to public shareholders at a fair price.
• Investors can sell shares to the promoters at this price.

4️⃣ Company Gets Relisted in the Future

• Some companies relist on stock exchanges after meeting regulatory requirements.
• Shareholders can hold onto their shares and sell when the stock is relisted.

5️⃣ Selling to Private Investors or Institutions

• Large investors, private equity firms, or HNIs may be interested in acquiring delisted shares if they see long-term value.
• Transactions happen through private negotiations.

1️⃣ Financial Position

✅ Reduced Compliance Costs - The company saves money on regulatory filings, listing fees, and compliance with stock exchange norms, improving profitability, especially for companies with low trading volumes.
✅ Limited Access to Public Capital - The company can no longer raise funds from the stock market through IPOs or follow-on public offerings (FPOs) and must rely on private equity, bank loans, or internal cash flows for funding.
✅ Potential Debt Burden - If the delisting was done using borrowed funds, the company might face a higher debt load, impacting financial stability.
✅ Stock Price Impact (Before Delisting) - In voluntary delisting, share prices may rise if investors expect a premium buyback offer, whereas in compulsory delisting, stock prices crash, eroding investor wealth.

2️⃣ Operational Impact

✅ More Strategic Flexibility - Without market pressures and investor scrutiny, the company can focus on long-term business strategies instead of short-term stock performance.
✅ Promoter Control Increases - Promoters gain full control over decisions without interference from minority shareholders, allowing for easier restructuring, mergers, or business pivots.
✅ Reputation & Credibility - Voluntary delisting does not harm reputation and may even signal strong financial health, while compulsory delisting due to violations damages credibility, making it harder to attract investors or secure loans.
✅ Employee & Stakeholder Impact - Employee ESOPs (stock options) may lose value if shares cannot be easily traded, and suppliers, customers, and lenders might see the company as less transparent.