What Leads to Delisting of Shares and What Goes Behind The Scenes?

We hear about companies getting listed on the stock exchange every now and then. The reverse of this also happens, termed as the delisting of shares. Not long ago, Sintex Industries was the talk of the town for the potential delisting of the company's shares. Reliance and ACRE (Assets Care & Reconstruction Enterprise) submitted a bid to acquire Sintex Industries. CoC (Committee Of Creditors) of Sintex Industries accepted the offer, and then Reliance-ACRE proposed to delist Sintex Industries' shares after the acquisition.

Let's dive into understanding what happens when a company delists its shares.

What is the delisting of shares?

When a listed company permanently removes its shares from the stock exchange for buying or selling purposes, it is termed the delisting of shares. Eventually, it means shares of the delisted company will no longer be available on NSE and BSE for trading. The delisting process in India is governed and monitored by SEBI (Securities and Exchange Board Of India).

What leads to this wave of delisting of shares?

Based on these reasons, the delisting of shares can be voluntary or involuntary, and a listed firm can be delisted from the stock exchange for multiple reasons. Some significant reasons for the delisting of shares are mentioned below.

The company fails to comply with the exchange criteria

Every stock exchange, including NSE, BSE, or Nasdaq has specific criteria for firms to be listed. Let's make it clear with examples. BSE specifies that the minimum market capitalisation for a firm should be ₹25 Crores. Nasdaq has its specific criteria that a firm's minimum share value must not be less than the value of the US dollar for 30 consecutive days.

The company gets bankrupt

Once a company goes bankrupt, it has no assets left to operate or function; its shares are valueless. The stock exchange removes the shares of bankrupt companies from its listings. However, in such situations, two types of scenarios can take place. First - the company is seeking more time to recover and give its shares a life again. Second- the company has abandoned its stock, and its shares are now worthless.

Merger and acquisition

Mergers and acquisitions are unique scenarios where shares of dissolved companies get delisted and relisted for the newly built entity or acquiring organisation. In merger cases, the shares of both merging entities will get delisted, and the stock value of the newly formed set-up would be higher than both merged companies individually for a short period. While, in acquisition cases, the share value of acquiring firms will get lower due to debts, payoff, and different other formalities, later, it will rise again gradually. Shares of acquired firms will get delisted.

Voluntary delisting by promoters

Promoters choose to delist their companies from the stock market for multiple reasons, such as; the stock market price is not reflecting the company's actual stock value, to get complete control over the company's operations without voting, reshaping the group entities, increased flexibility, lower costs due to multiple regulatory compliances.

Delisting of Shares: Behind the Scenes

A firm that fails to comply with the terms set by the exchange on which its stock is listed receives a non-compliance notice letter. However, a firm's stock is not immediately removed from the stock exchange. Instead, the letter invites the guilty company to respond with a summary of the steps it intends to take to resolve the delinquencies in question. If the exchange accepts the conditions of the corrective plan, it will closely monitor the company's financial progress to ensure that its goals are met on time. However, if a corporation does not react within ten business days of receiving a notification letter, the exchange will begin the delisting process immediately.

If a company is delisted, its shareholders can not sell its shares on the stock exchange, but they can trade shares on the over-the-counter market. That means they have to look for a buyer outside the stock market. In every type of delisting of shares, whether it is voluntary or involuntary delisting, shareholders get impacted.

How To Buy Delisted Shares In India?

When a company's stock is delisted, it may continue buying or selling shares over the counter on the bulletin board. Additionally, its investors who hold the shares of a delisted company can trade shares through independent stock brokers. Investors can get huge gains by buying delisted shares because promoters buy delisted shares back at a premium price. Apart from massive profit, investors can use delisting shares as an opportunity and tactic to get shares of delisted companies in NSE/BSE at a cheaper rate as investors are eager for liquidity. Stockify is one such stock broking e-platform where you can buy delisted shares in India. Also, here, people can trade (buy or sell) pre-IPO stocks.