What to do if you have shares of a delisted company? Sometimes, companies require funds from the general public. That’s when we hear about IPOs or an Initial Public Offering.
If the company is doing well and it has strong fundamentals and good financials, many people subscribe to its shares.
Eventually, it gets listed on a stock exchange. However, the reverse of this might also happen. Companies get delisted or removed from stock exchanges.
Investing in companies with the help of an IPO helps investors to make handsome listing gains. Staying invested in them might help them increase their fortunes.
However, having the shares of a delisted company wipes away their entire capital, particularly, if there is no chance of it getting relisted.
Delisting does not happen overnight. If you’re worried about what you should do if you own the shares of a delisted company or a company that is about to get delisted, do not fret about it, we’ve got you covered!
What is Delisting?
When a company gets listed on the stock exchange, its shares are available for buying and selling. The exact opposite happens when it gets delisted.
Shares of delisted companies are unavailable for buying and selling on the bourses. These stocks will not be traded on the NSE, the BSE, and any other stock exchange that the company gets delisted from.
Recently, the share capital of Sintex Industries Limited was reduced to zero and the company got delisted. No trades happened since Tuesday, 22nd March 2022.
The assets of the company are being acquired jointly by Reliance Industries Limited and Assets Care & Reconstruction Enterprise Limited.
Why Does a Company Get Delisted?
The shares of a listed company may get delisted from one or more stock exchanges on which it was listed due to several reasons like insufficient market capitalization, a failure to comply with regulatory requirements, for the purpose of improving strategic management, and if the company files for bankruptcy.
Delisting may be voluntary or compulsory, depending on the reason for delisting.
- Usually, voluntary delisting happens due to financial and economic considerations such as the costs involved in keeping the stocks listed, compliance costs related to disclosures, or if the benefits of being listed have not accrued to the company if it wants to go private if the promoters want to increase their stake in the company or restructure its business.
- On the other hand, compulsory delisting might happen if the company has not met any disclosure requirements, is involved in fraudulent activities, if the net worth of a company is negative, if the shares of the company are being traded inconsistently, and so on.
Sometimes, companies are listed on various regional exchanges apart from the BSE and the NSE. They may want to delist from these regional exchanges and stay listed on the NSE and BSE.
In this case, investors have an easy exit option as they can easily sell their shares on these major exchanges. Companies get delisted when they successfully buy over 90% of the shares.
How to Sell the Shares of a Delisted Company?
When a company gets delisted, its shares cannot be bought and sold on a stock exchange. However, the ownership of its shares remains with the investors.
The good news is that investors can sell these shares outside the stock exchanges, depending on the type of delisting.
When a Company Gets Delisted Voluntarily
This means that the company might be doing really well, but it wants to get delisted.
In this case, all shareholders of the company will receive an official letter from the company or the acquirer, informing them about a buyback of the shares of the delisted company.
The shareholders can accept the offer, bid for the buyback, sell their shares to the acquirer and receive their money.
When a Company Gets Delisted Compulsorily
In this case, an independent evaluator is appointed and he/she fixes the price at which the shareholders can sell the shares of the delisted company to the acquirer.
However, in this case, the shareholders do not get to make good profits from the buyback, as compulsory delisting usually happens due to non-compliance, non-disclosure, or other negative activities.
What Happens if an Investor Misses the Window to Bid for a Buyback?
There is a specific time period during which shareholders can sell their shares to the acquirer. If they fail to do so in the assigned window, they have an option of selling the shares to the promoters of the company at the same exit price!
This facility is usually available for a period of at least one year from the date of closure of the delisting process and the promoters are under an obligation to accept the shares.
When shareholders sell their shares to the acquirer or the company’s promoters, they receive a premium or huge gains on the shares. It is observed that the share price of a company falls after a buyback, due to a drop in liquidity.
What Happens if an Investor Misses the Second Chance to Sell the Shares of a Delisted Company?
If investors are unable to sell their shares to the promoters, as they have missed the one-year window as well, they’ll have to find buyers on the over-the-counter market, which is a tedious procedure.
The over-the-counter markets are usually loosely regulated and do not provide easy access to everyone. However, they may help investors to get at least some money for shares that have lost value post-delisting.
Can a Company Get Relisted?
Well, yes! The listing and delisting of companies from stock exchanges are governed by the Securities and Exchange Board of India (SEBI).
A delisted stock can be re-listed, only if the SEBI permits it and this depends on the type of delisting.
- Stocks of voluntarily delisted companies: Stocks of companies that get voluntarily delisted have to wait for at least five years from their delisting date before they get relisted.
- Stocks of compulsorily delisted companies: Stocks of companies that get voluntarily delisted compulsorily will have to wait for at least ten years before they get relisted.
Should You Accept a Share Delisting Offer?
Know Why a Share is Getting Delisted Before Investing
Sometimes when companies are about to get delisted, there is an increase in their share price and investors might try to buy these shares, without the knowledge that the value of their holdings will soon be reduced to zero.
Experts say that prudent investors should not look at delisting as the sole reason for investment and that it is important to know why a company is getting delisted before investing.
Even on a regular basis investors should study the fundamentals of a company and only then invest in it. One needs to study a lot of quantitative and qualitative factors before deciding if they want to accept the delisting offer or not.
When should you not worry?
If a company gets delisted because of business restructuring, if promoters want to increase their share, or if they want to expand their business, it shouldn’t be a reason for alarm.
There isn’t too much to worry about if the fundamentals of a company are strong, and there is a positive change in its shareholding pattern, provided that an investor is willing to stay invested until the company gets relisted- if it happens.
These shares are almost non-tradeable due to reduced liquidity.
It is always better to tender shares if a company reaches the 90% threshold and uses the proceeds elsewhere to get better returns.
When investors sell shares directly to promoters, after the time frame for which the company is buying back these securities is over, such an off-market trade is subject to tax as applicable.
Experts have observed that companies usually come up with IPOs when the markets are bullish so that they can get more money from the public.
On the flip side, they tend to delist when the markets are bearish so that they can buy back the shares at a cheaper price, as investors get an exit at a premium to the existing market price at that time.
Top Delisted Companies in India
Some of the top companies that got delisted in India are:
- Cadbury India Ltd.
- Kodak India Ltd.
- Otis Elevator Company (India) Ltd.
- Alembic Glass Industries Ltd.
- TVS Finance and Services Ltd
- Reliance Media Works Limited
- Panasonic Home Appliances India Company Ltd.
- Deccan Chronicle Holdings Ltd.
Read why these companies got delisted, here.
Delisting of companies might happen due to various reasons and they may be good or bad. When investors get to know that their shares might be delisted, it is better to liquidate them, especially if it is a compulsory delisting.
However, in the case of voluntary delisting, it might happen that the delisting does not go through as the promoters might be dissatisfied with the price arrived at for the purpose of delisting.
They might even cancel the delisting of the company. In this case, investors have no option but to sell the shares at the price prevailing on the stock exchanges, even if it is very less compared to the amount at which they invested.