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IBS - Delisting

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6 views

IBS - Delisting

Uploaded by

mantashahussain.imba20
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Delisting of a Listed Companies

• Delisting is the process by which a company whose shares are listed


on stock exchange is taken private once again by getting its publicly
held shares bought over by private shareholders and terminating the
listing agreement with the stock exchange.

• As a result there cannot be public shareholding of shares and shares


cannot be traded on exchanges.
Contd..

• It is also known as ‘going private’ .

• In India Delisting can be either compulsory or voluntary.

• Compulsory de listing happens when stock exchanges penalizes a


company through delisting its shares for non payment of fees,
violation of listing agreement or for further statutory violations such as
non filing of accounts etc.
Contd..

• Current thinking is to allow delisting as a natural process as it is a


contractual relationship between a company and exchange, so it should
have an exit mechanism subject to interest of investor being protected.

• Company needs to protect them time to time from unwanted


intrusions through the secondary market route, especially when their
market capitalization is unduly depressed. In such times delisting
offers strategic advantage to the companies.
De- listings in India

• It is a common occurrence in India.

• Most multinational companies, which prefers 100% subsidiaries to


listed companies, have been active in de-listing their Indian
subsidiaries.

• Philips India, Coates Viyella, Castrol India, Wartsila India, – they all
have delisted in 2000-01.
Voluntary Delisting

• If costs of being listed outweighs the benefits sought to be received, it

would not make any sense to company to remain listed.

• There are two component of cost for a company to stay listed – The

cost of regulatory compliance, the cost of equity

• In order to decide on delisting, this cost of public equity should be

compared by return demanded by private equity investors.


Contd..
• In a good market condition cost of private equity would be higher than
public equity and it should remain listed.

• In a weak market, return expectation of public equity increases as there


would be no good exit option available, if cost of regulatory compliance
increases, it adds to the increased cost of servicing public equity.

• In a weak and highly regulate market cost of public equity increases that
of private equity.
Contd..

• In weak market company would not be able to raise further funds


through issues in near future, company may even find difficult to raise
private equity on reasonable terms.

• In such conditions delisting can be the way out.

• There is always an option with the company to come back to the


market when conditions improve.
Regulatory Requirements for delisting

• SEBI ( De listing of securities ) Regulations 2009 ( de listing


guidelines), which apply to all kinds of de listing mechanism.

• De-listing cannot be the result of a buyback offer or open offer. It can


only be through a distinct and separate offer as per the requirements.

• De-listing offer is made by the promoters or substantial shareholders.


Process of Voluntary Delisting

• A company would be allowed to delist voluntarily provided it has been


listed for at least 3 years prior to that date on any stock exchange.

• Such delisting would be permitted by approval of the shareholders in


general meeting and making a public announcement of a de listing offer.

• Before making a public announcement a Merchant Banker should be


appointed.
Pricing a voluntary De-listing

• It is an expensive affair since the retail investors would want to make


the best of an exit opportunity that comes their way after a long time.

• De-listing guidelines provide for the mechanism of ‘ reverse book


building’ in case of de –listing offers.

• For purpose of delisting public announcement should contain a floor


price.
Contd..
• Floor price has to be determined as the average of 26 weeks traded price quoted
on the stock exchange where the shares of the company are most frequently
traded during such period or average of preceding 2 weeks opening and closing
traded price.

• There would not be any cap price for the offer.

• The final price of a offer would be discovered through a reverse book building
process as the price at which max numbers of shares have been offered by
investor for sale.
Contd..

• Promoters shall have option to accept the final price or not. If the final
price is accepted, the promoter or acquirer shall be bound to accept all
the offers up to and including the final price but may not accept the
higher priced offers if so desired.

• If final price is not accepted , no de listing application should be made.


Compulsory Delisting

• Stock Exchange may delist the companies which have been suspended for non
compliance with listing agreement or matters connected therewith.

• The Delisting should be publicized and displayed on the trading system

• Stock Exchange shall appoint independent valuers to assess the valuation of


the company and fix the price for repurchase.
• Independent valuer can be Merchant Banker or CA

• Shareholders of the company have an option to sell their shares to


promoters at stated valuation.

• If they exercise the option promoters shall buyback the shares at fixed
price and it has to be settled in cash.
Relisting

• In case of Voluntary Delisting – Cooling period is 10 years

• In case of Compulsory Delisting – 5 Years

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