Exits are never easy, whether it’s an exit from a house where you have lived your lifetime or exiting an investment. Many of us would have faced such a state of mind when we know that the company where we had held shares for the last fifteen years would be soon delisted from the stock exchange. So what is Delisting? Delisting of a company means, a procedure in which a company’s shares are removed from the stock exchange. Delisting of shares has become a critical issue in the financial sector that causes uneasiness for the investors.
In such types of situations we would be totally confused, whether to hold shares and wait for the company to relist or encash them by selling the shares to the promoters. Over the past three years, a minimum of 50 companies have delisted from the stock exchange, due to this reason the retail investors get struck with their investments. Normally one of the main reasons for delisting is violation from the financial specifications set out by the stock exchange.
There are shareholders who are living with expectations, that someday these companies will get relisted and their share certificates will derive some value. In the coming years many firms will go through the process of delisting. SEBI has made strict delisting norms taking investor’s interests are safely guarded. However, in some cases of delisted companies residual investors reap huge premiums on exit prices.
Permanent removal of securities of a listed company thus comprises Delisting. As a result of this the shares of that company would no longer be traded. Some points that might help you in situations like Delisting.
The two most important factors that often make a company to the process of delisting are
1. When a company fails to comply with various requirements of the stock exchange set out in the listing agreement within the time frames mentioned. As a measure of penalizing the company’s shares can be removed from the stock exchange. This is known as Compulsory Delisting.
2. The second one is voluntary delisting, which means that a listed company decides on its own to remove its shares from the stock exchange.
Since you are an investor there would be situations where you would be able to face with the delisting. You have two solutions that would work better, one would be to hold the shares and wait for the relisting of the shares to the exchange. The second option would be to accept the buyback price that the company offers you before it gets delisted.
Exit opportunities are available for the investors, According to SEBI (delisting of securities) guidelines 2003, the promoters of the company should purchase back the shares from its investors, within a time frame of a year from passing the resolution of the delisting.
The resolution that gets passed for the delisting by the company is passed to the market regulator (SEBI). SEBI appoints an independent body who would fix the fair value of the shares that are to be delisted. The fair value is the minimum price that the company should pay for the delisted shares to the investor. Normally the exit price is calculated by the by the price that is based on the average of 26 week high and low prices.
Post the delisting offer closing, there is a period of another six months, which allows the shareholders to get the money back of the shares they hold. This rule will not be applicable for those companies that are suspended. In such a case there would be only an option which would be to wait for the listing.
The rights that you have while as a share holder of a company would be the same when it’s delisted too, to receive bonus, dividends, annual reports and annual meetings. If you face a situation as you are not getting the information from the company, you can have that from the website of ministry of corporate affairs by paying a nominal fee.