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De-Listing of A Listed Company

This document provides an overview of the process of de-listing a company from a stock exchange in India. It discusses how de-listing involves taking a publicly listed company private by buying out public shareholders. The key aspects covered include the regulatory framework for voluntary de-listing, requirements such as board approval and shareholder resolution, the reverse book building process for determining the de-listing price, and grounds for compulsory de-listing by stock exchanges.

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Vrinda Garg
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63 views14 pages

De-Listing of A Listed Company

This document provides an overview of the process of de-listing a company from a stock exchange in India. It discusses how de-listing involves taking a publicly listed company private by buying out public shareholders. The key aspects covered include the regulatory framework for voluntary de-listing, requirements such as board approval and shareholder resolution, the reverse book building process for determining the de-listing price, and grounds for compulsory de-listing by stock exchanges.

Uploaded by

Vrinda Garg
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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DE-LISTING OF A

LISTED COMPANY
Introduction to De-listing

■ De-listing is a process by which


– a company whose shares are listed on a stock exchange is taken private
– by getting its publicly held shares bought over by private shareholders and
– terminating the listing agreement with the stock exchange.
■ This process of a buy-out of the minority by the majority to make the company privately
owned once again is known as going private.
■ In India, this process is called voluntary de-listing (imp. Strategic advisory & issue
management function of IB) managed by merchant bank
Evolution of De-listing in India

■ There was no provision in the Companies Act, 1956 or the SCRA that provided for de-listing by companies.
– Dr. K.R. Chandratre Committee set up in 1997 prescribed criteria for de-listing of loss-making
companies and other provisions.
– The Securities and Exchange Board of India (De-listing of Equity Shares) Regulations, 2009 (De-
listing Regulations) form the statutory framework for voluntary de-listing by listed companies.
■ The main thinking behind de-listing is:
– Allow de-listing as a natural process since listing is an agreement btw issuer & SE and hence should
have an exit option
– Right balance to look at capital markets as a source of capital as & when necessary & not as an
obligation more so under stressed mkt conditions
– When mkt capitalization of companies are weak, company want to protect themselves from unwanted
intrusions through the secondary markets
De-Listings in India

■ Mainly to address problems of illiquidity for investors in under-performing scrips & to


provide off mkt exit
■ Compulsory
– when the stock exchange penalises a company for
• non-payment of listing fee,
• violation of the listing agreement or
• for other statutory violations such as non-filing of accounts etc.
■ Voluntary
– is a process initiated through a minority buy-out by a promoter or an acquirer or
any other person other than the stock exchange.
Voluntary De-listing

■ Costs for companies to stay listed


– Cost of regulatory compliance
– Cost of equity which is higher than cost of risk free debt
■ Together, these two elements constitute the cost of public equity.
– to decide on de-listing, this cost of public equity should be compared to the return
demanded by private equity investors.
■ Good mkt conditions (cost of PE> cost of public equity) →Remain public
■ Weak & highly regulated mkt conditions (cost of public equity>cost of PE) → GO
PRIVATE
Regulatory Requirements for Voluntary
De-listing
■ Initially, de-listing through a share buyback was allowed in India:
– public shares would be bought back by a company.
– thereafter it could apply for de-listing citing lack of minimum public shareholding.
■ Presently, a company cannot be de-listed unless
– a specific de-listing offer is made through the reverse book building route under the
De-listing Regulations.
■ The main change that has been brought about is:
– companies cannot de-list using the fixed price tender offer.
– It is mandatory for a company to go through a process of reverse book building and
exit price discovery.
Main Provisions

■ The De-listing is governed by the SEBI De-listing Regulations 2009.


– Voluntary de-listing sought by the promoters of a company (complete de-listing).
– De-listing by operation of law due to winding up of a company.
– Promoters seeking to de-list a company from some of the stock exchanges (partial
de-listing).
– Compulsory de-listing of companies by the stock exchange.
Process for Voluntary De-listing

■ Shares should be bought by promoters or substantial shareholders of the company.


■ More than 3 years have elapsed since the listing of the company no outstanding convertibles.
■ Voluntary de-listing would be permitted by
– obtaining approval of the board of directors.
– followed by a special resolution of the shareholders in general meeting, and
– making a public announcement of a de-listing offer.
■ The company cannot keep its depository receipts listed while the underlying shares in India are
delisted.
■ The company have to complete the de-listing offer and make the final application to the stock
exchange for de-listing within one year from the date of passing of the special resolution
Process for Voluntary De-listing

■ The minimum bids required for the de-listing to be successful shall be the higher of the
following:
– Up to 90% of the issued capital of the company excluding shares held by custodian
that are underlying depository receipts; or
– The promoter holding prior to the offer + 50% of the offer quantity.
■ If the quantity eligible for acquiring shares at the final price does not result in public
shareholding falling below the required level for continuous listing, the company shall
continue to remain listed.
Pricing a Voluntary De-listing

■ The De-listing Regulations 2009 provide for the mechanism of reverse book building in case of de-listing
offers.
■ The public announcement made for the de-listing offer has to specify a floor price.
■ The floor price of the offer has to be determined as the higher of the following:
– The average of the opening and closing 26 weeks traded price quoted on the stock exchange; or
– The average of the preceding 2 weeks opening and closing traded price.
■ There would be no maximum price or cap for the offer.
■ The final price of the offer is the price at which the maximum number of shares have been offered by the
shareholders for sale.
■ The promoters or acquirers shall have the option to accept the price or not.
■ If the final price is not accepted, the offer stands cancelled.
Minority Squeeze out

■ Minority squeeze out is a process whereby the controlling buy-out the minority interests in a
company.
■ The question arises
– should the minority have a right in to decide on the squeeze out itself or only decide on the
exit price?
■ Under law, a threshold is prescribed whereby if the majority reaches a prescribed percentage of
holding, it is given a right to squeeze out the minority.
■ Now, if the minority is unwilling to sell the residual shareholding in the company even after the
stipulated period of one year.
■ In the event the minority does not come forward, their shares will be deemed to have been sold or
cancelled and the consideration would be despatched to them by the company.
Reverse Book building

■ Reverse book building is the process


– by which a company that wants to delist from the bourses, decides on the price that needs to be paid to
public shareholders to buy back shares.
– The first step is appointing a merchant banker to oversee the electronic bidding. The banker and
promoter then advertise the offer and dispatch a letter detailing the floor price for the buyback to all
public shareholders.
– Stock exchanges then facilitate a reverse book building process through an online, fully automated,
screen-based bidding system. Shareholders who hold shares can approach trading members or
brokers to relay their bids to the company.
– The tender price or the price at which the shareholder is willing to sell his shares needs to be equal or
above the floor price notified by the company.
– The final buy back price will be determined only after the offer closes after aggregating all
shareholder bids.
Why Reverse Book building

■ This process for delisting ensures that Indian promoters don’t hop on and off the stock
exchange platform at whim.
■ Given that investors bid in an auction to invest in an IPO, it is only fair that they be
allowed to use a similar auction to decide the exit price when a company wants to bid
goodbye to them.
■ If companies are allowed to decide on a buyback price on their own, they can short
change lay investors by undervaluing the business.
■ Reverse book building, through a transparent auction, allows investors to discover the
price that is acceptable to them when they are asked to surrender all their ownership
rights in a company.
Compulsory De-listing

■ Stock exchanges may de-list companies which have been suspended for non-compliance with
the listing agreement or matters connected therewith.
■ The de-listing decision shall be taken by a specially constituted panel of the stock exchange and
notice of the termination of the listing agreement needs to be given to the company.
■ The de-listing should also be publicised and displayed on the trading systems.
■ The stock exchange shall appoint independent valuers to assess the valuation of the company
and fix the price for repurchase.
■ Where a company has been compulsorily delisted, the company, its whole-time directors, its
promoters and the companies which are promoted by any of them shall not directly or indirectly
access the securities market or seek listing for any equity shares for a period of ten years from
the date of such de-listing.

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