- Delisting is the route undertaken by companies to make their companies private from the public.
- Delisting is beneficial to companies in the sense that compliance and regulations get reduced once they are delisted.
- Delisting has been carried on in the past voluntarily when promoters get too many restrictions from the stakeholders to take their company forward or when they do not want to keep up to the listing norms from the exchanges.
- Thus for the ease of doing business many companies delist their shares and many also delist to play with frauds and irregularities as they are no more listed so they are not required to adhere strictly to norms laid down.
Delisting is a process in which the stocks listed on the bourses i.e. on stock exchanges are delisted from trading.
It means permanent removal of shares from the stock exchanges and hence they are unavailable for trading.
|Table of Contents|
|What happens during Delisting of Shares?|
|Delisting of Shares Tax implication|
|The recent buzz of Vedanta to Delist its shares|
Delisting is either voluntary or involuntary in nature.
Voluntary refers to the company’s discretion in delisting its stock i.e. the company decides to delist its shares from the bourses.
Involuntary delisting refers to various wrongdoings like non-compliance or violating various rules which will force the company to delist its stock.
In the case of voluntary delisting, the delisting shall be considered successful only when the shareholding of the acquirer together with the shares tendered by public shareholders reaches 90% of the total share capital of the company.
What happens during Delisting of Shares?
In case of voluntary delisting of shares, the shareholders are offered to tender their shares to the company at a floor price determined by the reverse book building process.
The delisting will only be successful if the requirement of 90% of the shareholders agrees to it, otherwise, the process is not completed and delisting doesn’t happen.
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In the case of involuntary delisting, the delisted company’s, whole-time directors, promoters and group firms get debarred from accessing the securities market for stipulated years from the date of compulsory delisting.
Promoters of the delisted companies are required to purchase the shares from public shareholders as per the fair value determined by an independent valuer.
In the prior times we have seen various companies opting to the voluntary delisting route to delist its stocks.
For instance, Essar Oil had previously set a price band of Rs 146.05 per share for the shareholders to tender their shares, but later the final delisting happened at 80% premium to the floor price at Rs 262.80 per share.
The Essar Oil delisting process, first mooted in 2014, took 4 years to conclude amidst regulatory hurdles and opposition from shareholder advisory firms.
Also, we have seen involuntary delisting i.e. order to delist the shares by SEBI in stocks like Amar Remedies, Supreme Tex Mart, etc which were forced to delist due to non-compliance.
Delisting of Shares Tax implication
Now there are two things to it either I don’t have the share and want to buy it before the exdate to take advantage and make some quick bucks.
Or I have the share since a long time that is holding period of more than an year and I want to give it for delisting.
So in the first case I will have to pay Short term capital gains tax which is prevalent in our country India according to an Individuals tax slab.
And in the second case since my holding period is more than an year thus I need to pay a flat tax of 10% on my profits so made due to delisting.
Also Read: Guide on Share Valuation
Now obviously if I do not make any profits or I make a loss then I need not pay any tax on this transaction of mine.
Even if we are participating in a delisting we should keep in mind to check if there are more Individual holders or more Institutional holders in that company.
Because normally its seen that if the Institutional holders are more and the stock prices have fallen like 9 pins then you can expect a decent price which can be higher than the floor price laid down by the promoters of the company during delisting.
But if the promoter’s shareholding is more in the company than chances of getting higher prices then laid down as floor price by the promoters becomes less.
Thus before participating newly into a delisting, one should always check the current shareholding pattern to understand their chances of making money from the delisting.
The recent buzz of Vedanta to Delist its shares:
Vedanta Resources (the promoter) has agreed to buy back the public shareholding of Vedanta Ltd at a floor or indicative offer price of Rs 87.50. This price is not the final price.
The Company will then require approvals of minority shareholders by way of a special resolution adopted through postal ballot.
This would require at least two times votes in favor of the de-listing proposal. In addition, Vedanta would need to obtain regulatory approvals in India and the US, given its ADRs listed on NYSE and approvals from its creditors and Exchanges.
It will then set a final floor price and initiate a reverse book building process.
The promoter group currently owns 51.06% (excluding ADRs) and 50.14% (including ADRs) of Vedanta while the rest is held by institutional investors and minority shareholders.
The promoter group has made an offer to acquire all the balance shareholding (subject to a minimum of 90% post-offer) to voluntary delist the company from stock exchanges
Shareholders can quote a higher price for tendering their shares. If promoters are serious about delisting, they may have to shell out a higher price than the indicative offer price just like Essar Oil.
The final exit price will be determined in such a way that it would increase promoter shareholding to 90%.
If a person does not tender unknowingly or knowingly during the delisting period than they can tender it within the year of the delisting closure date.
The promoters will then have the discretion to accept or reject the final exit price.
Once all the approvals are in place, the delisting process will take 3 to 6 months subject to delays due to litigation.