Delisting of Shares

Delisting of shares is the removal of a company’s equity shares from trading on a stock exchange. Once delisted, the shares can no longer be bought or sold on the exchange. Delisting can be voluntary (initiated by the company) or involuntary (imposed by the exchange or SEBI).

What Is Delisting?

When a company’s shares are delisted, public shareholders lose the ability to trade those shares on the exchange. Delisting is governed by SEBI (Delisting of Equity Shares) Regulations, 2021 in India.

Types of Delisting

**Voluntary Delisting:**
– The promoter or controlling shareholder wants to take the company private
– The company must make an exit offer to all public shareholders
– The offer price is determined through a “reverse book building” process where public shareholders bid the minimum price they will accept
– A specified minimum percentage of shares must be acquired for the delisting to succeed

**Involuntary Delisting:**
– Imposed by the exchange or SEBI for non-compliance
– Reasons: failure to pay listing fees, non-submission of financial results, fraud, suspension of trading for extended periods
– Shareholders are given an opportunity to exit, but involuntary delisting often signals deeper problems

Reverse Book Building in Voluntary Delisting

1. Acquirer announces intention to delist and an indicative floor price
2. Public shareholders bid the minimum price they want for their shares
3. The price at which 90% of public holding can be acquired determines the exit price
4. If the exit price is acceptable to the promoter, delisting proceeds; otherwise, the offer lapses

Practical Example

A family-owned listed company decides to go private. It announces a delisting offer with a floor price of Rs 400. Through reverse book building, the discovered exit price is Rs 440. The promoter accepts this price and makes an open offer to all public shareholders. Over 92% of public shareholders tender their shares, crossing the threshold. The company is delisted and shareholders receive Rs 440 per share.

Key Takeaways

– Delisting removes a company’s shares from trading on a stock exchange
– Voluntary delisting requires an exit offer through reverse book building to public shareholders
– Exit price is determined by the price at which 90% of public shares can be acquired
– Involuntary delisting is imposed by regulators for compliance failures and is generally negative for investors
– SEBI (Delisting of Equity Shares) Regulations, 2021 governs the entire process in India