Delisting Equity Shares Meaning, Conditions, Types, And Process

Delisting of equity shares: The SEBI (Delisting of Equity Shares) Regulations, 2021, were introduced on June 10, 2021. These new regulations are similar to the SEBI (Delisting of Equity Shares) Regulations, 2009, but they include specific changes to make the delisting process more efficient and precise.

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Delisting Equity Shares Meaning

Conditions For Delisting Equity Shares

• A company cannot request delisting; a recognized stock exchange cannot allow delisting unless the equity shares have been listed on any recognized stock exchange for at least three years.
• Delisting cannot occur immediately following a buyback of equity shares. A six-month period must elapse after the completion of such a buyback, including buybacks resulting from the consolidation or division of equity share capital.
• Delisting cannot occur immediately following a preferential allotment of equity shares. A six-month period must elapse from the date of such an allotment.
• An acquirer is prohibited from proposing the delisting of a company's equity shares if the acquirer has sold equity shares of the company during the six-month period before the date of the initial public announcement of the delisting proposal.

Reasons Why Companies Delist Their Shares

• If a company merges with or is bought by another, its shares might be delisted. Shareholders could receive new company shares or cash.
• Companies not meeting stock exchange rules, like financial reporting or minimum market value, can be delisted.
• Companies in financial distress may delist to avoid scrutiny and to have more flexibility in managing their debt.
• Some companies delist to go private or to focus on long-term goals without worrying about short-term market pressures.

The Process of Delisting Equity Shares

• Notification: The company informs the stock exchange and shareholders about its decision to delist shares, stating reasons, dates, and sale procedures.
• Trading Halt: Trading may pause to let shareholders decide on their investments. It could be suspended if listing rules aren't met.
• Approval: Stock exchange and regulators like the SEC review compliance and share info with shareholders.
• Implementation: Once approved, the shares are removed from the exchange, ending trading there.

What Are The Types of Delisting?

• Companies may delist their shares to restructure their operations or business model as part of a larger strategy.
• Maintaining a listing on a stock exchange involves significant costs. By delisting, a company can reduce these expenses.
• Some companies choose to go private, eliminating the need to disclose financial information publicly and allowing for greater operational flexibility.

• Stock exchanges have specific requirements regarding financial reporting, minimum share price, and market capitalization. Companies that fail to meet these criteria may be delisted.
• A company can be involuntarily delisted if it breaks the stock exchange's rules or regulations. This ensures only companies that follow high standards of transparency and compliance stay listed.

What Are the Effects of Delisting the Equity of Shares?

• Loss of Liquidity: Shares are more challenging to sell quickly after delisting because they're no longer traded on the stock exchange.
• Impact on Stock Prices: Delisting can lead to lower stock prices because fewer people want to buy shares.
• Limited Access to Information: Shareholders may struggle to get updated company details after delisting, making judging their shares' worth challenging.
• Rights and Options of Shareholders: When shares are delisted, shareholders can sell them, keep them, join a buyback offer, or participate in a reverse merger.

Strategies to Deal with Delisted Shares

• Sell the Shares: You can sell your shares before they stop trading to avoid problems like low trading activity and falling prices.
• Keep the Shares: Holding onto your shares might let you gain if their value increases later.
• Tender Offer: The company might offer to buy back your shares at a higher price, giving you a chance to sell for more.
• Reverse Merger : A private company buying a public one might mean you get shares in the new company instead.

Can Companies Relist the Equity Shares?

• For voluntary delisting, companies must wait at least five years before they can relist.
• For compulsory delisting, the waiting period is ten years before relisting is allowed.