Companies delist shares voluntarily or due to regulatory violations, making trading difficult for investors. When a company delists, you still own your shares but cannot trade them on stock exchanges. You can sell through an over-the-counter market or participate in a buyback if the company offers an exit price.
Companies may delist voluntarily or be removed for reasons such as regulatory violations, low market capitalisation or financial distress. Here's what happens to your tied investments.
While companies often seek to list their shares on stock exchanges, there can be instances when they choose to go the other way and withdraw their shares from the exchanges. This process is known as delisting.
Such an event limit a shareholder's ability to buy or sell the specified company's shares through the usual route, leaving them wondering what happens to the shares they hold and whether they can recover their investment.
The process of delisting securities for any company is governed by the markets regulator, Securities and Exchange Board of India (SEBI).
Why can a company's shares be delisted?
A listed company's shares can be delisted from stock exchanges for several reasons. These include a company having insufficient market capitalisation, violating regulatory norms or facing financial distress leading it to file for bankruptcy, according to a blog post by Groww.
Delisting can also be voluntary, when a company or its promoters decide to withdraw the shares from the stock exchanges. This happens when a company merges with another entity, undergoes amalgamation or is going through a long period of non-performance.
What happens to the shareholders?
When a company delists its shares, investors continue to own the shares they hold, but they can no longer trade them through the stock exchange (NSE or BSE or both) where the shares were listed.
Shareholders can still sell their holdings through the over-the-counter market, which involves finding a buyer outside a recognised stock exchange.
The impact on shareholders also depends on whether the delisting is voluntary or involuntary. The process, exit options available and implications for investors can differ depending on the circumstances of the delisting.
Here are your money recovery options if it's a voluntary delisting:
The promoter or acquirer announces a buyback by sending out a letter and bidding form to eligible shareholders. The final exit price is determined based on the price at which the maximum number of shares is offered.
If you do not sell your shares during the reverse book building process or exit window, you can continue holding them and seek a buyer through the over-the-counter market. However, finding a buyer is difficult after delisting.
When a company voluntarily opts for delisting, it usually offers its investor a buyback at a premium price. This can result in a significant gain only if the investor acts on time as it is a temporary opportunity. Once the buyback window closes, the price of the stock is likely to drop, as per the blog post.
Here are your money recovery options if it's a involuntary delisting:
Promoters are required to buy back the shares at the price determined by an independent evaluator. If you choose not to, you will retain ownership of the shares but selling them later can become difficult. Thus, it is better to offload your shares during the buyback.
A delisted stock can sometimes be allowed to trade on the stock exchanges again only if SEBI permits it. If the stock was delisted voluntarily, then the company has to wait for five years to get relisted again.
If a company has been delisted compulsorily, it will have to wait for 10 years before they can be listed again on the exchanges.