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What is Delisting of Shares? What is the Exit Opportunity for Investors?
We have so often heard about listed shares in India and the Bombay Stock Exchange has some of the largest listed shares in the world.
Shares are first offered through an Initial Public Offering and then listed on the stock exchanges. But, what happens when a company that has listed on the markets, wants to delist.
Understanding the Terms Voluntary Delisting and Compulsory Delisting
In Compulsory delisting the shares are taken out from the stock exchanges due to various issues including non-compliance of listing agreements with the exchanges or any other issues. In case of compulsory delisting the company itself decides to take the delisting root and get its shares listed due to a change in ownership or for any other reason.
How Do Shareholders Benefit on Delisting?
The Securities and Exchange Board of India (SEBI) provides an exit guideline for delisting of securities. An exit price has to be determined by the company planning to delist. The exit or offer price would be the average of 26 weeks traded price prior to the announcement being made.
In case the offer price is way below the market price based on the above formula, the stock price might fall and vice versa.
Interestingly, there is no formula for a maximum price and a company can also offer a healthy price then the above formula. This would mean that the stock could flare-up to align with the offer price of delisting.
Can a company delist from only a particular exchange?
A company can stay listed on one particular exchange and it then does not have to offer shareholders an exit option. For example, if the company decides to delist from the NSE and continue on the BSE it still remains a listed company. There are many companies in India that have followed that mechanism. Most recently companies like Novopan Industries, Piramal Glass, Vishnu Sugars got delisted from the exchanges. Sometime companies get delisted as they undergo amalgamation and trade in the name of a new company. But that is a different issue altogether.
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