Finance

Why do Companies Delist from the Exchange?

Delisting-Why do Companies Delist from the Exchange?

Introduction:

  • We often hear of companies needing to be listed on the stock markets, but the opposite is also true. Also, several times companies choose to stop offering securities in the market for trading.
  • The term for this phenomenon is Delisting. You must have heard about this year’s de-listing. The delisting strategy is voluntary or forceful and is being implemented to simplify the complicated framework of the business.

  • Delisted shares refer to a listed company’s shares which have been permanently excluded from the stock exchange for buying and selling purposes.
  • In contrast to other ways of delisting, such as transfer to the more regulated Main Market, takeovers, or violation of regulation, existing shareholders have two choices of voluntary delisting: sell their shares before the delisting date, or keep them in what becomes a privately-owned firm.

Get complete CFA Online Course by experts Click Here

Reasons behind Delisting:

  • Reasons for delisting of shares can be voluntary or involuntary, based on the reason for delisting. The shares of a listed company are de-listed from exchange for different reasons such as inadequate market capitalization, stock price not matching the required level, the bankruptcy of a company, inability to comply with mergers and acquisitions of exchange regulatory requirements, etc.
  • Company shares could trade below intrinsic value, requiring the firm, as a strategic step, to buy its own stock. This usually results in short-term rewards for shareholders with large returns.
  • The costs of becoming a publicly listed company are considerable and are often difficult to justify with a low market capitalization, especially since Sarbanes-Oxley laws called for enhanced disclosures.
  • For companies to remain listed, stock exchanges such as the BSE and NSE have minimum requirements. If a company fails to satisfy those criteria, they can be compelled to delist itself. Causes for delisting can involve failure to submit timely financial reports, lower stock prices than required, or inadequate market capitalization.

Voluntary Delisting:

  • In the case of voluntary delisting, listed companies actively choose to permanently withdraw shares from the stock exchange where the company chooses to go to private.
  • In fact, mergers or amalgamation or non-performance with another company are a few reasons why shares are voluntarily delisted.
  • If you own stock in a company that has applied for voluntary delisting, the company is expected to provide you with two options as set out in the Securities and Exchange Board of India’s delisting guidelines.

Involuntary Delisting:

Involuntary delisting refers to the involuntary removal from the stock exchange of listed company shares for different reasons, such as failure to comply with the listing guidelines, late issuance of reports, low share price, etc.

  • In this scenario, promoters are expected to buy back the securities at the valuation an independent evaluator decides. Although delisting does not affect the ownership of the shares, after delisting, corporate shares are likely to have no substantial value.
  • Delisted shares can be a benefit or a burden for investors, depending on the calls taken during that circumstance. Thus, if any of the stocks you hold are de-listed, it is important to closely examine the factors and then make the decision to either dispose of or retain them in your portfolio for a long time.

Get complete FRM Online Course by experts Click Here

Examples of recent delisted companies:

Company Name

Date Reason

Kothari World Finance Limited

19 Jun 2020 Pursuant to the SEBI (Delisting of Equity Shares) Regulations, 2009 as amended from time to time
Vyapar Industries Ltd. 02 Jun 2020 Pursuant to the SEBI (Delisting of Equity Shares) Regulations, 2009 as amended from time to time
ORIENTAL BK 27 May 2020 Amalgamation
JEM Industries Ltd., 27 May 2020 Redemption
GRUH Finance Ltd 27 May 2020 Amalgamation
GUJARAT BORO 27 May 2020 Amalgamation
MONSANTO IND 27 May 2020 Amalgamation
Corporation Bank 27 May 2020 Amalgamation
Syndicate Bank 27 May 2020 Amalgamation
Andhra Bank 27 May 2020 Amalgamation
ALLAHABAD BK 27 May 2020 Amalgamation
EXCEL CROP 27 May 2020 Amalgamation
Piramal Phytocare Limited 27 May 2020 Amalgamation
Arrow Textiles Limited 27 May 2020

Amalgamation

 

Author: Pruthviraj Sondani

About the Author: One day I will find the right words, and they will be simple.

Related:

What benefits can SLB bring to market efficiency

What is Merger Arbitrage Strategy

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *

3 × four =