What is Delisting ?
A large number of companies exist in India, that although listed on a stock exchange at one point of time, do not trade on these stock exchanges anymore.
This set of companies can generally be split into delisted and unlisted categories.
Let’s begin with understanding what the unlisted category entails. These “unlisted” companies are companies which are listed on various stock exchanges, such as the Delhi Stock Exchange (DSE) or the Calcutta Stock Exchange (CSE). Since trading on such stock exchanges has stopped altogether, shares of these companies can only be purchased or sold off market.
Delisted companies, on the other hand, are companies which were listed on stock exchanges at one point of time, but due to voluntary or compulsory delisting, are not listed on the stock exchanges anymore. As a consequence, securities of the company no longer trade on the stock exchange. Delisting generally works within a regulatory framework provided by SEBI in the SEBI Delisting Regulations, 2009.
In terms of voluntary delisting, in order for a company to successfully delist, the promoter and promoter group must be hold atleast 90% of the total paid up capital or acquire atleast 50% of the offer size (Section 17, SEBI Delisting Regulations). The price which the promoter offers to non promoters to purchase shares to reach a total of 90% holding (known as “Reverse Book Building”) must be a fair price, else non promoters can refuse to sell.
This “fair” price which the promoter offers must have a lower limit, called a “floor”, which is determined by various guidelines, however there is no upper limit. Non promoters generally seek a price for their securities which reflects the “inherent” value of a company. This inherent value considers various factors of a company, such as its investments, profitability, sales etc.
As mentioned earlier, a company which is able to successfully delist will have promoters who hold atleast 90% of the total paid up capital. However, of the remaining 10%, certain part will still be held by non promoters. This non promoter holding consists of shares which are illiquid, and generally have no visible exit opportunities. If an exit opportunity does arise, however, investors can reap massive profits. Viable exit opportunities can include acquisition of remaining share by promoter, mergers and acquisitions, subsequent relisting and a score of others.