Recently, we have seen a flurry of delisting from the exchanges; delisting announcements were made by certain widely held companies including those on the NIFTY-50 and subsidiaries of global corporations. These companies propose to voluntarily delist itself from all stock exchanges according to the SEBI regulations which provide the public shareholders an exit opportunity through the reverse book building process. Now the question arises, why there are so many incidences of delisting? How does a company get delists itself from the exchange? Should investors hold that share which has announced voluntary delisting?

There could be many reasons such as valuation of stock prices, uncertainty in the business environment due to COVID 19, market volatility, and continued cost of regulatory compliance which has given an option for some promoters to delist their share from exchanges. Voluntary delisting is a strategic move for a company that decides to remove its own securities from stock exchanges. Moreover, the COVID-19 pandemic has offered an opportunity to promoters to increase their control at a reduced cost, save companies to a potential hostile takeover and besides that delisting provides companies financial freedom to take a decision on either restructuring or to utilize cash flows for group-level activities without the interference of public shareholders or minority shareholders and the capital market regulator Securities and Exchange Board of India (SEBI). Moreover, the recent changes made by regulator SEBI to delisting norms that are allowing the acquirer to make a counteroffer if the price discovered under the reverse book building process is not acceptable and clarification on the reference date for computing the floor price, have helped ease the delisting process.

Secondly, there are exhaustive rules, legal frameworks, regulations, and processes under the Delisting Regulations and certain key issues involved in delisting and public shareholders should know how they can save their interest in the company. According to the regulations, first, the Promoter expressed its interest to acquire all the Equity Shares that are held by Public Shareholders and subsequently delist the Company, after that board would take a report from their merchant banker and the floor price certificate from independent chartered accountant provided its consent to the Delisting Proposal. After that, the company sends postal ballot notice to seek shareholders' approval. Further actions can be taken only if it is approved with a 2/3rd majority of Public Shareholders. This is an approval to proceed with the Delisting Offer and is not a decision on the final exit offer price. Post shareholders' approval, the company would be required to apply to Stock Exchanges seeking their in-principle approval. Following the in-principle approval, Promoter will make a public announcement ("PA") and dispatch a letter of offer (containing material information in relation to the Delisting Offer) ("LOF") along with a bid form to the Public Shareholders. After that, the bidding period (open for 5 working days) shall commence within 7 working days of the PA during which the Public Shareholders may tender their bids. The “final exit offer price” will be determined as the price at which Equity Shares accepted through eligible bids, which takes the shareholding of the Promoter (along with the persons acting in concert) to at least 90% of the paid-up equity share capital of the Company. This does not trigger the actual sale of the share unless the offer is accepted. Within five working days from the closure of the bid period, the Promoter will be required to make a post-offer PA regarding (a) the success of the Delisting Offer along with the final exit offer price; or (b) failure of the Delisting Offer.

If the Delisting Offer is successful, the Promoter will be required to pay the consideration to Public Shareholders, whose shares have been validly accepted in the Delisting Offer within 10 working days of the closure of the bidding period. After payment of consideration, the Company would make the final application to the Stock Exchanges. Upon receipt of their approval, Equity Shares will be delisted from the Stock Exchanges.

One more rider in that regulation is that the Public Shareholders may tender their Equity Shares to the Promoter up to a period of a minimum of one year from the date of delisting and, in such case, the Promoter will accept the Equity Shares at the final exit offer price. Such trade will be an off-market trade and subject to tax, as applicable.

So, the public shareholders also play a key role in price discovery in any voluntary delisting offer. Thus, voluntary delisting does not happen overnight and shareholders get enough to get benefit from that event. Voluntary delisting is an extreme step that may be affected not just by the prevailing market price but may be part of the strategy of the company to manage the business opportunities related to the company. However, it also has a negative impact by preventing the company from re-listing on stock exchanges for at least five years.



CA Seema Srivastva

Senior Research Analyst (Equity Fundamental)

SMC Global Securities Limited

Professionally she is a chartered accountant and possesses 15 yrs qualified experience in the field of the financial market. She is specialized in corporate action strategy and fundamental analysis. Besides she has the ability to analyze Macro factors like credit policy, fiscal policies and other economic affairs outcomes, etc. and its impact on financial markets. Apart from the core activities, she has been part of various investors' education seminars and provided share market and corporate action training to the business participants.