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Delisting of Securities & Financial Restructuring

Delisting refers to removing a company's stock from a stock exchange so it can no longer be traded on that exchange. Companies may decide to delist for reasons such as going private, moving to the over-the-counter market, no longer meeting exchange listing rules, or wanting to reduce regulatory costs and overhead. Delisting does not necessarily mean a change in strategy but can cause unease for investors who are stuck with delisted stocks.

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253 views

Delisting of Securities & Financial Restructuring

Delisting refers to removing a company's stock from a stock exchange so it can no longer be traded on that exchange. Companies may decide to delist for reasons such as going private, moving to the over-the-counter market, no longer meeting exchange listing rules, or wanting to reduce regulatory costs and overhead. Delisting does not necessarily mean a change in strategy but can cause unease for investors who are stuck with delisted stocks.

Uploaded by

Parita Shah
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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DELISTING OF SECURITIES

DELISTING OF SECURITIES
Delisting refers to the practice of moving in the stock of a company from a stock exchange so that investors can no longer trade shares of the stock on that exchange. Delisting occur when companies decide to delist their stock from stock exchanges in a move to privatize or simply move to the over-the-counter (OTC) markets.

This typically occurs when a company goes out of business, declares bankruptcy, no longer satisfies the listing rules of stock exchange, or has become a private company after a merger or acquisition, or wants to reduce regulatory reporting complexities and overhead, or if the stock volumes on the exchange from which it wishes to delist are not significant.

Delisting does not necessarily mean a change in company's core strategy. Delisting of shares has become a critical issue in the financial sector that causes uneasiness for the investors. Over the past three years, a minimum of 50 companies have delisted from the stock exchange, due to this reason the retail investors get struck with their investments.

Main reasons for delisting is violation from the financial specifications set out by the stock exchange. SEBI has made strict delisting norms taking investors interests are safely guarded. However, in some cases of delisted companies residual investors reap huge premiums on exit prices.

According to SEBI (delisting of securities) guidelines 2003, the promoters of the company should purchase back the shares from its investors, within a time frame of a year from passing the resolution of the delisting. The resolution that gets passed for the delisting by the company is passed to the market regulator (SEBI). SEBI appoints an independent body who would fix the fair value of the shares that are to be delisted.

Normally the exit price is calculated by the price that is based on the average of 26 week high and low prices. Post the delisting offer closing, there is a period of another six months, which allows the shareholders to get the money back of the shares they hold. The rights that shareholders have while as a share holder of a company would be the same when its delisted too, to receive bonus, dividends, annual reports and annual meetings.

Delisting process occurs in two ways:ways:Voluntary Delisting Forced Delisting companies are notified 30 days before being delisted and shares can plunge as a result.

Reasons of delisting & Advantages to shareholders:shareholders:Capital Savings - The costs of being a publicly traded company are substantial and are occasionally difficult to justify with a low market capitalization. As a result, deregistering can save a company millions and reward shareholders with a higher net income and earnings per share (EPS).

Strategic Move - Shares of the company may be trading below intrinsic value, compelling the company to acquire its own shares as a strategic move. This typically results in shareholders being rewarded with substantial returns over the short term. Regulatory Concerns - Stock exchanges have minimum requirements to remain listed. If a company does not meet those requirements, it may be forced to delist itself. Causes for delisting may include failure to file timely financial reports, lowerthan-required stock price, or insufficient market capitalization.

FINANCIAL RESTRUCTURING

Financial Restructuring
Referred to as financial reorganization of a company by affecting change in the capital structure for achieving a balanced operative results. FR is resorted to bring balance in debt & equity, short-term & long-term financing, to achieve reduction in finance charges, to reduce cost of capital, to increase EPS, to improve market value of share, to reduce the control of financiers on the mgmt. of the company etc.

Improves the financial strength of the company. Adjustment of gearing i.e. debt-equity ratio to achieve maximization of wealth of shareholders. FR involves restructuring of assets & liabilities of the company, in the line with their cash flow needs, in order to promotes efficiency, support growth and maximize value to shareholders, creditors and other stakeholders.

FR will bring in the change in capital structure, which depends on the following factors:
a) b) c) d) e) f) g) h)

Mgmt. control Cost of different sources of capital Flotation cost Cost of servicing the equity & debt Risk & return profile of the industry Financial risks involved in debt financing Flexibility in capital structure Legal formalities etc.

Poor capital structure may be due to:a) Project cost overrun b) Technological obsolescence c) Accumulated loss and unrepresented value of assets in b/s d) Insufficient WC e) Financing of FA with short-term funds f) Financing of CA with long-term funds g) Investment in non-core business & assets which does not contribute to profitability h) Poor CR i) Inadequate ROCE. FR scheme should able to minimize the COC, maximize the ROE, increase EPS and market price of equity shares.

Steps in Financial Restructuring


1) 2) 3)

Valuation of business. Formulation of New Capital Structure Exchange of Old Securities of New Securities

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