What is Delisting Of Securities/ Shares? How To Sell Delisted Shares?

As per the FAQ’s on SEBI (Delisting of Equity Shares) Regulations, 2009 on SEBI website, delisting of securities is defined as the 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.

Types of delisting of securities:

Voluntary Delisting: In voluntary delisting, listed corporates on their own seek permanent removal of their securities from the stock exchange. This may be in a case when the listed corporate intends to go private. Some of the reasons for voluntary delisting may be non-performance, amalgamation or merger with another entity. Now in such a case, the company going for voluntary delisting needs to offer two options to its investors as per the SEBI rule:

1. To hold on shares till the investor finds a buyer

2. To square off positions in the stock during the reverse book building process.

Compulsory Delisting: In compulsory or involuntary delisting, the regulatory body asks or compels the listed entity to delist all its shares from the stock exchange. The reasons for such involuntary or compulsory delisting may be non-compliance with the set rules of the exchange, negative net worth owing to huge losses incurred over the past 3 year period and in a case when shares traded irregularly over the 3 year period.

What is the difference between voluntary delisting and compulsory delisting?

In voluntary delisting, a company decides on its own to remove its securities from a stock exchange whereas in compulsory delisting, the securities of a company are removed from a stock exchange as a penal measure for not making submissions/complying with various requirements set out in the Listing agreement within the time frames prescribed.

How to sell/exit delisted shares?

SEBI (Delisting of Securities) Regulations, 2009 provide an exit mechanism to the existing shareholders in the following manner:

Voluntary delisting whereby the exit price is determined through the Reverse Book Building process-

The floor price is calculated in accordance with the regulations and the shareholders have to make a bid at a price either on or above the floor price. The exit price would be decided on the basis of bidding by the public shareholders. If the exit price so determined is acceptable to the promoter, the promoter pays that price to the investors and the investors can exit.

Those investors who do not participate in the Reverse Book Building process have an option to offer their shares for sale to the promoters. The promoters are under an obligation to accept the shares at the same exit price. This facility is usually available for a period of at least one year from the date of closure of the delisting process.

Voluntary Delisting for a small company- Any company with paid up capital of less than Rs. ten crore and net worth less than Rs. twenty five crores, whose equity shares have not been frequently traded on any recognized stock exchange for a period of one year and has not been suspended for any non-compliance in the preceding one year would not be required to follow the Reverse Book Building process. In such cases, the promoter decides the exit price in consultation with the merchant banker. The promoter writes to all public shareholders informing the proposal for delisting. Once the requisite consent is received, the promoter makes payment of consideration for the same and the shareholders can exit .