Is your company delisting? Know your rights as investors

Ramesh is having sleepless nights ever since he heard the news that his company might be soon taken off the stock exchange. He is in a dilemma whether to continue to hold the shares and wait with the hope that the company would relist or sell the shares to the promoters. Ramesh is not alone here! Many investors face the risk of getting stuck with their shares investments in the case a company is taken off the stock exchange or what is called getting delisted. However, Ramesh and many other investors have a reason to smile as delisting of shares has just got tougher with the Securities and Exchange Board of India notifying the new Sebi (delisting of equity shares) regulation, 2009. But before we look into the new regulations and how it protects the investors, let us see the basics of delisting.

What is delisting?

For the uninitiated, delisting is a process by which the shares of a company are taken off the stock exchange. In other words, the trading in the shares of the company cannot be continued hereafter.

Why do companies delist?

Delisting can happen on two situations and can be done by the stock exchange or by the company itself. If it is done by the stock exchange then it is called compulsory delisting and if it is done by the company itself it is called voluntary delisting.

In the case of compulsory delisting, the stock exchange might remove the shares of the company if it finds that there is a breach of, on the part of the company, the legal requirements of the stock exchange. This has got its own process.

In the case of voluntary delisting, the company voluntarily would decide to go for delisting and remove its shares off the stock exchange. This is a lengthy process because the interests of the shareholders are involved. The voluntary delisting requires the mandatory meeting of all regulations including approval from board members, providing an exit opportunity for all public shareholders at a price quoted by them, and in-principle approval from the stock exchange among others.

Will the new steps taken by SEBI give more powers to investors?

Delisting in India is protected by one of the strongest laws in the world. According to the new Sebi delisting regulations, delisting can happen only in the rarest of rare cases.

The new provisions in the regulation do not allow a company to delist its shares by way of buy back of equity shares and through preferential allotment. A company cannot delist its shares if its equity shares are listed on any stock exchange for less than 3 years. The regulation does not allow the convertible securities to be delisted. Delisting is prohibited in the case of outstanding instruments that could be converted into equity shares sought to be delisted.

If delisting is proposed it should comply with the following points laid down by the new regulation:

One, the number of votes favouring the delisting by public shareholders that is other than the promoter shareholders should now be at least twice the number of votes posted against the move.

Two, a new procedural dispensation that requires the stock exchange's 'in-principle' approval at the beginning itself has now been made mandatory. This will be followed by the requirements that should be complaint with the rules and help determine the initial price and the final offer price which should be accepted. Then, the final approval of the stock exchange should be sought within one year from the date of passing of the special resolution seeking delisting of the company's shares.

To safeguard the investors, the new regulation has said that all shareholders would be required to be given an exit opportunity at a price determined by them. The offer price at which the shareholders may be purchased will be determined by the price at which the maximum shares offered by the acquirer. If the acquirer already has more than 90 percent shares, acquiring just one share to comply with the delisting regulation cannot be considered as successful delisting. The acquirers should buy at least 50 percent of the offers under the buy mode.

If the offer is successful, then the remaining shareholders can tender their shares to the promoters at the same price at which shares were accepted in delisting up to period of one year from the date of delisting.

On the issue of relisting, the company which opted for voluntary delisting cannot relist its equity shares for 5 years from the date of delisting.

The new delisting regulation which has given more teeth to the system, makes delisting more tough than before and gives more power to the investors.