Today, we will see what exactly happens when a stock is delisted from stock market? What happens to the shareholders and how they get the money back for their shares?
To understand de-listing, first let’s understand meaning of “Listing”
So when a private company wants to be become a public limited company and offer its share to open public for buying and selling, then it has to get it registered with stock market and make its shares open to public and that is called as “listing”. Once a stock lists on the stock market, it then has to follow up various processes and comply with many rules and regulations.
Meaning of Delisting
When a company wants to de-register its stocks from stock exchange and no longer wants to let public buy and sell its shares, then it’s called delisting process. In most of the cases, the stock holders will get back the value of their shares on the price which is determined at the time of delisting.
There are two kind of delisting
Voluntary delisting
Voluntary delisting, as the name suggests happens when the company takes the decision of delisting themselves. It happens mainly because company does not see any benefit in keeping its shares on stock exchange and wants more control. In this case, the buyback price offered to the shareholders is more price than the prevailing stock price. Common reasons behind voluntary delisting are
- Merger with another company
- Looking for more control and simplification within company
Involuntary delisting
- Involuntary delisting happens not out of choice, but when the situation forces for the delisting. When this happens, mostly the shareholders don’t get the good price, because anyways the stock prices must be at lowest levels. Some of the common reasons for involuntary delisting are
- Violations of Regulations
- Failure to meet the minimum financial expectations
- Company is bankrupt or ceases its 0perations
- No longer meets the listing requirement on stock exchange
How the investor gets their money back once the de-listing happens?
In case of Voluntary delisting
Understand that if its voluntary delisting, then it’s happening because the company wants it to happen. In this case, there is enough time for shareholders to get back their money and it’s mostly the transaction between the promoter and shareholders. In this case, you can expect to sell your shares back to promoters at premium price.
There is around 1 yr. of time for shareholders to get back their money and it happens through a process called as “Reverse book building” process
In case of Involuntary delisting
When involuntary delisting happens, it’s a case of violation of norms/regulations most of the times and it sends a negative shock among stock holders. Most of the times, the stock is already quoting at a lower price. In this case, whatever price is offered by company, it’s suggested to take it and close the matter.
In any kind of listing, it’s not suggested to wait for future listing of the company because you have no idea when it will happen again. It might never happen. Also it gets very tough to find a buyer off the market and get a good deal.
Recent delisting case of Vedanta Ltd
Let’s talk a bit about the recent case of Vedanta Ltd delisting news. Recently, Vedanta Ltd has decided to delist from stock exchanges because of “Corporate simplification”. They feel it will enhance operational and financial flexibility in a capital intensive business.
It was a case of Voluntary Delisting, and hence there is enough time for delisting process and shareholders don’t have to panic at all. The company has decided to buy out the minority and non-promoters shares back from public. They have proposed an “indicative offer price” of Rs 87.5 a share which is around 10% more than the closing market price last of 79.6.
Now the next set of process will follow, but you don’t need to get into details. The point is that the delisting will happen and shareholders will get a good exit.
Here is a small list of few companies which got delisted in the last 10 year from BSE
- Maharaja Shree Umaid Mills Ltd on Feb 2, 2015
- Shantivijay Jewels Ltd on Jan 20, 2015
- Novopan Industries Ltd on Nov 10, 2014
- Vishnu Sugar Mills Ltd on Jun 30, 2014
- English Indian Clay Ltd on Jun 4, 2014
- Rhodia Speciality Chemical India Ltd on May 28, 2014
- Reliance Media Works Ltd on May 6, 2014
- Reliance Broadcast Network Ltd on March 28, 2014
- Gujarat Organics Ltd on Jan 9, 2014
- Chettinad Cement Corporation Ltd on July 8, 2013
Hope you all have understood the various aspect of delisting of a company from the stock exchange. If you all have any questions, you can put across in the comment section and I will get back to you on your queries asap.