Understanding what happens after a company gets delisted is important for investors, especially those holding its shares. Delisting affects how shares are traded, their liquidity, and available exit options. Globally, more than 60% of delistings result from mergers and acquisitions, suggesting that companies often exit markets for strategic reasons rather than failure. In this blog, we will explain what delisting means, its types, and how it impacts shareholders and companies.
What is Delisting?
Delisting refers to the removal of a company’s shares from a stock exchange such as the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE). When a company gets delisted, its shares can no longer be bought or sold on the stock exchanges.
This can happen either by the company’s choice or due to regulatory action. After delisting, the company may become privately held, and public investors cannot trade its shares through regular stock market platforms.
Although trading stops, shareholders still retain ownership of their shares. However, the absence of an exchange makes transactions less convenient and reduces transparency in pricing.
What Happens to the Shareholders?
When a company gets delisted, shareholders are directly affected in terms of liquidity and exit options. They continue to own the shares even after delisting, as ownership is not removed, but those shares can no longer be traded on stock exchanges, which limits easy buying and selling.
Investors are usually given an exit option through a buyback or an offer made by promoters. If shares are not sold during this exit window, they can still be sold later in the over-the-counter (OTC) market, although finding buyers is often difficult. As a result, liquidity reduces significantly, and the share price may drop due to lower demand.
In simple terms, what happens after a company gets delisted is that shareholders still own the company, but selling those shares becomes harder and less predictable.
Types of Delisting
Delisting can broadly be classified into two main types. These types determine how shareholders exit and what processes are followed.
- Voluntary Delisting
Voluntary delisting happens when a company itself chooses to remove its shares from the stock exchange. This usually happens when promoters want full control, or the company plans to restructure or go private. As per regulations set by the Securities and Exchange Board of India, companies are required to give shareholders a fair exit option during delisting.
- Offload Your Shares in Reverse Book Building (RBB)
This is the most common method used in voluntary delisting.
- The company or promoter offers to buy back shares from public shareholders.
- Investors bid the price at which they are willing to sell their shares.
- The final exit price is decided once the promoter achieves the required shareholding level, usually around 90%.
- Shareholders who accept the offer receive payment directly in their bank accounts.
- This method ensures a transparent price discovery mechanism based on investor demand.
- Hold Till You Find a Buyer
If you choose not to participate in the RBB or if you miss the window, you still own the shares. Promoters are required to keep an exit window open for one year after the delisting date at the same final exit price. After this one year, finding a buyer becomes a manual, private process. You would need to find a private buyer and execute a physical or off-market transfer, which is often a tedious process with no guarantee of a fair price.
- Involuntary Delisting
Compulsory delisting takes place when a recognised stock exchange or a regulator like the Securities and Exchange Board of India removes a company for not complying with listing rules and legal requirements. This action is not taken by the company itself but is enforced to ensure proper market functioning and protect investor interests. In these situations, the price offered to shareholders for exit is decided by an independent valuer appointed by the exchange.
Can a Delisted Stock Come Back?
Yes, a delisted company can return to the stock exchange, but it must follow strict regulatory rules and timelines. A cooling-off period is mandatory before relisting typically around 3 years in case of voluntary delisting, while for involuntary delisting, the waiting period can extend up to 10 years as per SEBI guidelines.
The company must meet all listing requirements again, including financial disclosures and compliance standards. Additionally, regulatory approval is required before relisting is permitted. However, relisting is not common and largely depends on the company’s financial condition and compliance track record.
Do Companies Benefit from Delisting Their Stocks?
Delisting can offer certain advantages to companies depending on their goals and situation. The key benefits are as follows:
- Reduced compliance and reporting burden: Listed companies must follow strict disclosure norms, file regular reports, and comply with regulatory frameworks. After delisting, these requirements are reduced, saving time and effort.
- Cost savings: Companies save on listing fees, administrative costs, and expenses related to maintaining public status, which can be significant over time.
- Greater control for promoters: Promoters gain more control over decision-making without pressure from public shareholders or market expectations.
- Privacy in operations: Business strategies, financial data, and plans do not need to be disclosed publicly, allowing companies to operate more privately.
- Freedom from market volatility: Share prices are no longer influenced by daily market fluctuations, giving management more flexibility in long-term planning.
- Ease in restructuring or mergers: Delisting simplifies processes like mergers, acquisitions, or internal restructuring without needing constant shareholder approvals.
Conclusion
To sum up, what happens after a company gets delisted is a move from public trading to a more restricted ownership structure. Shareholders continue to hold their shares, but liquidity reduces, and selling becomes more difficult. Depending on whether the delisting is voluntary or compulsory, investors may receive exit options or face challenges in finding buyers.
