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The formal admission of a company’s securities on a stock exchange is called listing a company. However, delisting of shares of a company is the opposite of listing. For instance, delisting is when a company decides to remove its shares from the stock exchange and is no longer available for trading. Moreover, the company has now become a Private Limited Company.
If the shares of a company are available on multiple stock exchanges and they are removed from one stock exchange, it is not referred to as a delisting. The shares of the company must be removed from all stock exchanges such that people can no longer trade in them for it to be delisted.
Voluntary delisting of shares:
When a company voluntarily removes all its shares from the stock exchange, making them unavailable for trading, it is called voluntary delisting of shares. The company pays shareholders to return their shares and removes the entire lot from the stock exchange.
Voluntary delisting may occur when a company is acquired by an investor who seeks a majority share in the firm. It is deemed successful if the shareholding of the acquiring company and the shares tendered by public shareholders reach 90% of its total share capital.
However, the company’s promoter cannot participate in voluntary delisting, and the floor price is fixed based on the reverse book building process. It is a process through which a company seeking to delist its shares from the stock exchange fixes a price that must be paid to public shareholders to buy back its shares.
Under voluntary delisting, eligible shareholders tender the equity shares through their stockbroker by specifying the details of shares to be tendered under the delisting offer.
The process takes place during trading hours in the secondary market. However, equity shareholders who do not participate in the reverse book building process can sell their shares to the company’s promoter.
Moreover, promoters must compulsorily purchase the company’s equity shares at the same exit price. The facility is available for a minimum period of one year from the closure date of the delisting process.
Compulsory delisting of shares:
If a company voluntarily delists its shares, all shareholders get an official letter from the acquirer informing them of the buyback. Shareholders will receive an offer from the acquirer along with a bidding form. Shareholders can accept the offer or refuse it and continue holding their shares. Delisting is successful after the acquirer purchases the requisite number of shares.
If shareholders fail to sell their shares to the acquirer or the promoter within the designated period, they must sell them to the buyer on the over-the-counter (OTC) market. However, there could be a drop in liquidity compared to the other approach. If shareholders continue to hold the shares after delisting, they will be the legal and beneficial owners of the shares.
In case of compulsory delisting of shares, the promoter must purchase shares from the shareholders at a fair value fixed by an independent evaluator. Compulsory delisting won’t impact shareholders’ ownership of shares. However, the value of shares goes down post-delisting. In the case of compulsory delisting, the promoters, whole-time directors and group firms are debarred from accessing the securities market for ten years from the compulsory delisting date.
Yes, the company can relist its shares on the stock exchange provided it fulfills the listing criteria and once more completes the appropriate paperwork. Moreover, relisting shares is similar to an IPO. According to SEBI rules, a company can relist two years from the period that it first delisted.
Under Section 18.1 of SEBI rules, permission is granted for relisting delisted shares after a cooling-off period of two years. It depends on the respective criteria for listing when the application was made for listing. Moreover, the application will be scrutinised by the Central Listing Authority.