Companies can get listed on the stock market through an Initial Public Offering (IPO). But did you know that the opposite can also happen? Companies are sometimes taken off the market too. Over the past 20 years, the highest number of delisting of shares in India (91) happened in 2018.
Here we explore what delisting is and what happens to shareholders when a company is delisted.
What is the delisting of shares?
Delisting of securities refers to the removal of listed securities from the exchange. Delisting of shares refers to the removal of stocks of a company from a stock exchange. Delisted stocks can still be bought and sold in the over-the-counter market.
In India, the Securities and Exchange Board of India (SEBI) governs the process of delisting.
Some reasons for a listed company to be delisted:
- Insufficient market capitalization
- Bankruptcy
- Failure to comply with regulatory requirements
Some companies that were delisted from NSE:
| Symbol | Company | Delisted Date | Type of Delisting |
| SYNCOM | Syncom Healthcare Limited | 14th January 2022 | Voluntary Delisting |
| SMPL | Splendid Metal Products Limited | 14th January 2022 | Voluntary Delisting |
| PATSPINLTD | Patspin India Limited | 19th January 2022 | Voluntary Delisting |
| GTNTEX | GTN Textiles Limited | 19th January 2022 | Voluntary Delisting |
| ARIHANT | Arihant Foundations & Housing Limited | 11th February 2022 | Voluntary Delisting |
| KWALITY | Kwality Limited | 28th February 2022 | Voluntary Delisting |
| PRADIP | Pradip Overseas Limited | 16th March 2022 | Voluntary Delisting |
| STINDIA | STI India Limited | 23rd March 2022 | Compulsory Delisting |
| CURATECH | Cura Technologies Limited | 23rd March 2022 | Compulsory Delisting |
| VIMALOIL | Vimal Oil & Foods Ltd | 23rd March 2022 | Delisting – Liquidation |
| PAEL | PAE Limited | 18th April 2022 | Voluntary Delisting |
| ROHITFERRO | Rohit Ferro-Tech Limited | 4th May 2022 | Voluntary Delisting |
You can find a list of companies that were delisted from NSE on their website, the link to which is mentioned below:
What happens to shareholders when a company is delisted?
Delisting a stock does not affect shareholders’ ownership. The key change is that shareholders of delisted companies will not be able to sell their shares on any exchange. If you wanted to try buying or selling delisted company shares, you would have to look for buyers and sellers outside the market.
Due to the difficulty in trading delisted shares, their value may be impacted.
The impact of delisting on the shareholders depends on the type of delisting – voluntary or involuntary.
Voluntary Delisting Of Shares
A company may delist from the stock exchange voluntarily. Some of the reasons for voluntary delisting of shares are mergers, amalgamations, or non-performance.
What happens if a company is delisted voluntarily?
As per the guidelines laid out by SEBI, shareholders of voluntarily delisted stocks have to be given 2 options:
- Promoters would have to offer to buy back the shares through a reverse book building process
- Shareholders can hold on to the shares and sell them on the over-the-counter (OTC) market
Sometimes voluntarily delisted companies will set the buyback price at a premium to the stock price. In such cases, shareholders can make gains by selling the shares back in the buyback window. However, it should be noted that the difficulties in trading such shares will increase after delisting. It might become challenging to find a buyer willing to buy at the price the shareholders want to sell at.
Involuntary Delisting Of Shares
When shares of a company are taken off the market by the exchange or the investment regulatory authorities and not by the company itself, it is called involuntary delisting. Involuntary delisting may happen because of various reasons like non-compliance with the listing guidelines, low share price and late filing of reports.
What happens if a company is delisted involuntarily?
When a company is delisted involuntarily, promoters are required to buy back the shares at the value determined by an independent evaluator.
Involuntarily delisted shares may not be as desirable. Most investors would try to sell off their shares before the date of delisting or sell it back to the company at a price determined by the independent evaluator.
Final Thoughts
Delisting of shares does not affect the ownership, but finding buyers and sellers for the stock becomes very difficult after the date of delisting. Whether the stocks are delisted voluntarily or involuntarily, the promoters are required to offer a buyback. If a shareholder did not sell their shares on the market or back to the promoters, they could still sell these shares on the OTC market.
It is difficult to find buyers and sellers for shareholders of delisted shares.
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FAQs
Shareholders won’t automatically lose money if their company is delisted. They will have the opportunity to sell the share back to the company’s promoters at a price set by an independent evaluator. However, selling shares on the over-the-counter market can be very difficult.
If the buyback window is still open, you can sell the shares back to the promoters. Before the day of delisting, you can sell the shares on the market. After the buyback window is closed and the stock delisting date is passed, you would have to find a buyer to sell the shares in the over-the-counter market.
Companies can come back on the exchange after getting delisted. This is called relisting. They will be required to meet the listing regulatory requirements.
Delisting will not impact the ownership of the shares, but delisted shares can be difficult to sell. They have to be sold on the over-the-counter market.
