Delisting of Equity Shares- Process

Delisting of equity shares grabbed the attention of investors in India as various media began to cover the announcement made by mining major, Vedanta in May, 2020.Compared to listing of shares, delisting of shares occurs rarely and a large segment of equity investors are not fully aware of the various processes involved.

The article covers the overall aspects related to delisting of equity shares with Vedanta Ltd’s delisting as example.

What is delisting of equity shares?

Delisting of equity shares is the reverse process of listing of shares. Removal of securities (equity shares) of a listed company from a stock exchange on a permanent basis is known as delisting. Once the process of delisting is completed, securities of that company would no longer be available for trading in the stock exchange. Decision by a company listed in multiple stock exchanges to discontinue trading in one of them does not come under this ambit as trading will continue in remaining exchanges. The delisting process shall be in compliance with the SEBI guidelines.

What are the different types of delisting of equity shares?

Delisting of securities can happen through voluntary delisting or compulsory delisting.

In a voluntary delisting, a company decides on its own to purchase back the shares from the public and thereby removes the securities from the stock exchange.

The compulsory delisting occurs as a penal measure. This penal action occurs as result of the company not making submissions/disclosures within the timelines stipulated or for breaches of conditions specified in the Listing agreement.

What are the offer price and floor price associated with the delisting of equity shares?

Offer price is the price offered by the promoter of the company for acquiring shares from the shareholders, as part of delisting of securities. The offer price has a floor price, the lowest price that can be offered. The floor price, shall be the average of 26 weeks average of traded price quoted on the stock exchange where the shares of the company are most frequently traded preceding 26 weeks from the date public announcement is made. There is no upper ceiling for making the offer price.

What is the reverse book building process in respect of delisting of equity shares?

Once the company announces the delisting plan, the public shareholders can start tendering their shares at or above the offer price. The company announces the delisting plan after completion of formalities like approval by the Board of Directors, appointment of merchant banker, announcement through news papers, opening of escrow account, intimation to stock exchange etc.

Reverse book building is the process to be adopted by the company for efficient price discovery. During this process, shareholders can tender their shares through an online bidding platform of stock exchange. The bidding platform remain open for five days.

What is the exit price or discovered price for delisting of equity shares?

The exit price or discovered price is the price that is to be offered by the company to public shareholders for acquiring the shares. The exit price is the price at which the shares tendered by the share holders make the shareholding of the promoter or acquirer to at least 90% of the paid up capital.

What is the next stage in delisting of equity shares after exit price (discovered price) is arrived?

Once the exit price is decided through the reverse book building process, the promoter has to make final decision within five days as to whether to accept or reject the discovered price. If the discovered price is accepted by the promoter or acquirer, the shareholders must be paid the amount within ten working days. If the bids are not accepted, the shares offered shall be returned the share holder within 10 days. The shares returned can be tendered by the shareholder to the promoter within a year of the delisting date at the discovered price.

What is a counter offer related to the process of delisting of equity shares?

If the discovered price is not acceptable to the promoter, the company may make another offer within four working days of price discovery. This counter offer should be between the book value of the company and the discovered price. Those shareholders not interested in the counter offer can withdraw the shares tendered during the reverse book building within 10 workings days of the counter offer. The shareholders, who had not tendered the shares during the reverse book building can make can tender their shares during counter offer.

The process of counter offer should commence within seven working days of public announcement of counter offer. The counter offer bidding remains open for five days with final decision announcement in next five working days.

Please click ‘Delisting Plan of Vedanta Ltd-Update’ to understand the practical aspects involved in delisting of equity shares.