Benefits of listing with Exchange not fruitfully ripped then choose ‘DELISTING’

Listed companies are full of compliances. Complying with each and every condition is not possible for every company. When we go through check list of compliances, it seems like endless. There is much compliance like:   

• Book Closure Notice to SE, RTA, NSDL and CDSL
• Book Closure Publication (Hindi +English Newspaper)
• Notice of Board Meeting to the stock exchange to consider the Quarterly/ Annual Results
• Close Register of Members
• Every listed company or a company having not less than one thousand shareholders shall provide to its members facility to exercise their right to vote at general meetings by electronic means.
• Every listed company or a company having not less than one thousand shareholders, debenture holders and other security holders, shall maintain its records in electronic form
• Appointment of Internal Auditors
• Rotation of Auditors
• Appointment of Woman Director
• Appointment of Small Shareholder’s Director
• Constitution of Audit Committee, etc

As we see that list is long and it continues, many companies fail to comply the same and results in paying interest or penalties. In addition to compliances, listed companies need to pay heavy amount to Stock Exchange.

When companies get listed, they target to expand existing market and diversifying into new markets. Fund raising from public, increase in share price and growth in credibility are the major attraction of getting listed.

When we go through the list of listed companies, we generally find there are many companies which are not actively working. Many companies fail to raise adequate funds and price of shares also decreases. With all major issues and scarcity of funds, still such companies are trying to fulfill the compliances of Exchange and bearing the extra cost burden. For these companies, therefore, it is suggested that it shall get its securities delisted. Benefits of listing with Exchange not fruitfully ripped then choose ‘DELISTING’.

Though delisting involves cost and paper work need to be done but as compared to carrying on the inactive company, getting delisted is always a viable option. If you find yourself in the same category then you shall understand the term delisting and its process in details.

What is delisting of securities?

“Delisting” of securities means permanent removal of securities of a listed company from a stock exchange. As a consequence of delisting, the securities of that company would no longer be traded at that stock exchange.

 What is the difference between Voluntary delisting and Compulsory delisting?

Compulsory delisting refers to permanent removal of securities of a listed company from a stock exchange as a penalizing measure for non-compliance.

In voluntary delisting, a listed company decides on its own to permanently remove its securities from a stock exchange.

Voluntary delisting of securities:

• A company may delist from stock exchange where its securities are listed
• The company have been listed for a minimum period of 3 years on any stock exchange
• An exit opportunity has been given to the investors for the purpose of which an exit price shall be determined
• An exit opportunity need not be given in cases where securities continue to be listed in a stock exchange having nationwide trading terminals

PROCEDURE FOR VOLUNTARY DELISTING

• Obtain the prior approval of shareholders of the company by a special resolution passed at its general meeting through Postal Ballot;
• Shall make a public announcement in the manner provided in these Guidelines
• Shall make an application to the delisting exchange in the form specified by the exchange, annexing therewith a copy of the special resolution passed
• Companies can get delisted from all stock exchanges following the substantial acquisition of shares. The regulation state that if the public shareholding slides to 10 per cent or less of the voting capital of the company, the acquirer making the offer, has the option to buy the outstanding shares from the remaining shareholders at the same offer price.; and;
• Shall comply with such other additional conditions as may be specified by the concerned stock exchanges from where securities are to be delisted.

Note:

• The public announcement shall contain inter-alia information specified in Schedule I. Before making the public announcement, the promoter shall appoint a merchant banker registered with the Board, who is not an associate of the promoter.
• The special resolution passed for the delisting giving exit option to the shareholders will be valid for a period of 1 year within which the final application will be required to be made to the exchange for delisting.

EXIT PRICE FOR VOLUNTARY DELISTING OF SECURITIES

• Is determined by the promoter of the concerned company which desires to get delisted, in accordance to book building process.
• The offer price has a floor price, which is average of 26 weeks average of traded price quoted on the stock exchange where the shares of the company are most frequently traded preceding 26 weeks from the date public announcement is made. There is no ceiling on the maximum price.
• In case of infrequently traded securities, the offer price is as per Regulation 20 (5) of SEBI (Substantial Acquisition and Takeover) Regulations.
• The stock exchange(s) shall provide the infrastructure facility for display of the price at the terminals of the trading members to enable the investors to access the price on the screen to bring transparency to the delisting process.
• In the event of securities being delisted, the acquirer shall allow a further period of 6 months for any of the remaining shareholders to tender securities at the same price

Does a company listed at BSE/NSE have to provide exit offer to shareholders in case it delists from stock exchanges other than BSE and NSE?

No, the company does not have to provide exit offer to shareholders because it continues to be listed on the BSE / NSE which have nationwide reach and shareholders can exit any time they decide to so by way of selling shares in NSE/ BSE.

RIGHT OF PROMOTER

The promoter may not accept the securities at the offer price determined by the book building process:

• he shall not make an application to the exchange for delisting of the securities; and
• the promoter shall ensure that the public shareholding is brought up to the minimum limits specified under the listing conditions within a period of 6 months from the date of such decision

The public shareholding may be increased by any of the following means:

• by issue of new shares by the company
• by the promoter making an offer for sale of his holdings
• by the promoter making sale of his holdings through the secondary market in a transparent manner

PUBLIC ANNOUNCEMENT OF FINAL PRICE

On determination of the final price pursuant to the book building, the promoter or the acquirer shall within a period of two working days from such determination:

• Make a public announcement in the newspapers of the final price and whether or not the promoter or the acquirer has accepted the price; and,

• Communicate to, exchange or exchanges from which delisting is sought to be made, the final price discovered and whether the promoter has accepted the price.

MINIMUM NUMBER OF SHARES TO BE ACQUIRED

In the process of delisting, if number of acceptance from public is less than the total shares outstanding and this result in not obtaining the minimum limit of public shareholding then, the offer shall be considered to have failed and no securities shall be acquired pursuant to such offer.

PAYMENT OF CONSIDERATION

The payment of consideration for delisting of securities shall be paid in cash by the promoter or acquirer.

SUCCESSFUL EXIT OFFER:

Under the Regulations, to get delisted, post offer, the Promoter holding should reach the higher of the following:

• 90% of total issued shares of that class; or
• pre offer promoter holding +50% of the Offer Size,

otherwise the offer shall be deemed to have failed.

To voluntarily delist, a company normally offers shareholders a premium to the price at which the shares are being traded on the exchange. When an investor sells to a promoter wishing to delist, the transaction is off the exchange. So, any profit is considered as a capital gain. If delisting takes place after one year of the purchase of the security, there is no capital gains tax.

If delisting happens within a year of the purchase, the gains will be taxed according to an individual’s tax slab.

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