An Article by Shivani Agarwal and Samaksh Khanna
Decoding Listing and Delisting
Listed entities as defined under Regulation 2(p) of Securities And Exchange Board Of India (“SEBI”) (Listing Obligations And Disclosure Requirements) Regulations, 2015 are entities that are registered on a recognised stock exchange and are freely traded on that platform. Delisting is the exact opposite wherein the securities of an entity is removed from a stock exchange and can no more be traded on it. Delisting is governed by SEBI (Delisting of Equity Shares) Regulations, 2009 (“Delisting Regulations”).
Reasons for Listing and DelistingReasons For ListingReasons for DelistingFree transferability[1]Due to higher market regulations[2]Ready marketability of securities[3]Takeovers[4]Safeguards the interest of investorsHigher costs of listing[5]Transparency through disclosures,[6] proper supervision and control over dealings[7]Less need for additional capital to finance their investments[8]High level of corporate governance and compliance[9]Major decline in insider ownership[10]Fund raising and exit route to investors[11]Low stock price performanceCollateral value of securities[12]Regional imbalance of the holders of the securities[13]Fair price for the securities[14]
Types of Delisting
The two types of delisting process include:
Voluntary
CompulsoryBasisVoluntary DelistingCompulsory DelistingDefinitionIt is an option exercised by a company itself to remove its securities from a particular stock exchangeIt is a penalising measure taken by a stock exchange to remove securities of a company from trading for non-compliance with law etc.Reasons
Company finds regulations and costs burdensome
To reduce dilution of control
Restructure including merger, amalgamation, acquisition etc.
Non-payment of fees
Non-compliance with regulations
Non-redressal of complaints made by investors
Unfair trade practices and/or malpractices
Applicability of Delisting Regulations
Delisting Regulations would apply to all the securities getting delisted from a recognised stock exchange except in following cases:
Institutional Trading Platform: Where securities are listed on any Institutional Trading Platform (“ITP”) without making a public issue, Delisting Regulations do not apply. ITP is a new window on stock exchanges to encourage early stage ventures to stimulate growth in technology, e-commerce, social media etc. SEBI has relaxed various norms in relation to ITPs.
Companies under Insolvency and Bankruptcy Code: Delisting Regulations were amended recently in June 2018 to exclude public listed companies who are subject to corporate insolvency resolution plan under Insolvency and Bankruptcy Code, 2016 (“IBC”), where National Company Law Tribunal has approved the resolution plan. However, this is conditioned with resolution plan providing the following:
A specific procedure to complete the delisting process
exit option to the existing shareholders at a price not lower than the liquidation value (determined under Regulation 35 of IBC after paying off priority dues) or a at a price at which promoters or other shareholders are provided an exit, whichever is higher
Details of delisting along with justification of price shall be disclosed to stock exchange within 1 day of approval of resolution plan.
Delisting not Permitted
Delisting is not permitted in following circumstances:
In case of buy back of equity shares.
In case preferential allotment is made by the company.
Until a period of 3 years has lapsed since the registration on any stock exchange.
In case the instruments issued by the company, that are convertible into the same class of equity shares that are sought to be delisted, are outstanding.
In case the promoter group or an entity belonging to the promoter has sold the equity shares of the company during six months prior to the date of board meeting in which such delisting is approved.
Delisting of convertible securities.
Conclusion
While delisting is instrumental in securities market, the difficulty arises after a successful delisting takes place. This article provides a base in understanding delisting process and the next article will pertain to process post delisting. It may happen that not all public shareholders give up their shares for a want of higher price etc. In those case, understanding the process of minority squeeze out and other methods of purchasing shares of such minority shareholders is imperative and the same shall be discussed in the next post.
[6] LODR, Regulation 4(2) (e)
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