What is Delisting of Shares?

There are thousands of companies listed in the stock market around the world. The company’s primary goal for going public is to gain popularity and capital from the stock market. There are also companies who got listed in the stock market. You may wonder now what is delisting of shares in india. 

What is Delisting of Shares?

Delisting meaning: Delisting of shares means a process of removing listed security from the stock market. There are two types of delisting: voluntary delisting and the other is involuntary delisting. The reason for delisting shares in the stock market can be to cease the operation of a company, declare bankruptcy, merge, miss listing regulation and seek to become a private company.

Delisting is where a company is not meeting the specific guideline set by the rules and regulatory board. Each exchange, such as the Bombay Stock Exchange, has a regulatory board called India’s Securities and Exchange Board (SEBI). Therefore, every company listed in the share market should follow at least minimal regulation required of that particular stock exchange. 

Suppose a company whose share price is Rs.10/- will find it challenging to be delisted. Delisting means for some companies to become private entities. Companies that make a cost-benefit analysis and calculate that being publicly listed will not benefit much. These often occur when company equities are purchased by a firm or a few influential shareholders. The following companies will apply for delisting and become privately traded firms. In the case of a joint venture, the company can still be separated and act as a new entity and voluntary the request delisting in the stock market.

To fulfill the delisting meaning, a company can also delist from the stock market when the company’s ability to maintain minimum share price, financial ratio and sales level is below the average point. In this scenario, the money market regulator issues a warning of non-compliance. And if the noncompliance continues, the exchange delists the company stocks. 

Some companies go through a reverse split of their stock shares to avoid delisting in the stock market. It has the effect of several shares multiplying into one share price. You can take the example that if a company executes a 1 for ten reverse split, it could raise its share price from a quarter rupees to a five rupees sum per share. In each case, the risk of delisting shares will no longer be required for that company shares.

It is essential to know that the delisting of share price in the stock exchange can damage a firm for a longer time. If delisted shares, the company cannot issue any new shares to the market when establishing new financial initiatives.

A company with a share price of Rs.10/- per share and several shareholders is around 500. The company equity value will be approximately Fifteen crore rupees or a market value of 50 crore rupees in which the total asset and revenue will be around 50 crore rupees.

To make things transparent, a company or IT giant needs to promptly disclose all the details to SEBI. Moreover, wIth proper bookkeeping, file utterly annual reports and the tax paid to the government. Failure in these requirements will result in a penalty or a delisting from the Indian stock market. 

You can also come across a situation where you notice a company merged with another publicly-traded company. Or  the company can move to a different stock exchange and dissolve or liquidate its assets to pay out the company’s existing shareholders.

Types of Delisting

As we know delisting meaning in stock market, We can look at the types of delisting. The types of delisting are voluntary and involuntary delisting. 

Involuntary Delisting

In the voluntary delisting, companies voluntarily opt for the permanent removal of their share from the stock exchange. As you understand the delisting meaning, you can consider the company’s non-performance are a few reasons for voluntary delisting. If you own the share of that company, then you have two options according to the guidelines set by SEBI.

Option1: You can sell your shares to a promoter or acquire your share through a reverse book building process. These promoters make a public announcement to buy back the following share from several shareholders. The share price is decided based on the maximum number of shares offered to the acquirer.

Option 2: It is hard to sell a delisted share; therefore, the delisted shareholder often needs to wait and have patience. You can sell your share in the over-the-counter market when the buyers are ready and willing to buy at the desired price. You should know that time is a critical factor here; when the buyback window closes, the stock price will drop and have a significant chance of loss.

Involuntary Delisting

Involuntary delisting is a forceful removal of a listed company from the share market. Removal can be non-compliance with the SEBI guidelines, low share price and late filing of reports.

Investors who own these shares will need to sell their shares before the post-delisting. Then, you can either exit the market or sell it to the company when it announced a buyback.

Advantage and Disadvantage of Delisting

The advantage of delisting is as follows.

• A company that is delisted from the share market does not require to publish annual reports.
• It also needs to reveal its shareholding pattern and other data and make it private for its function.
• The company gets free from any compliance or minimum criteria needed to regulate by the SEBI.
• Companies save from the listing expenses and annual trading costs that need to be paid in the stock market.
• Delisted companies avoid the market risk, and the promoter retains their ownership.

Disadvantages of delisting stock in the stock market

• After delisting, the company loses the power to raise public funds and needs to regain the shares if they want to list the stock price again.
• It can damage the book value of the company.
• If the process of the stock delisting is not proper, it can harm or damage the price and the company value.

Conclusion

As you know well, what is delisting in stock market? The advantages and disadvantages of deleting processes must look for long-term goals and plans. The consequence of delisting company shares can be harmful and affect the Share market. 

It is possible to relist a delisted stock on a significant exchange, but it’s not the case. The delisted company will also be on the verge of bankruptcy and a clash between the compliance of the exchange board standards. As a result, the delisted stock is often acquired by a private owner or forced to liquidate. And in the rare case, a company restructures itself and applies for the Initial Public Offering (IPO).

Frequently Asked Questions (FAQs)