Listing of domestic companies in Indian Stock market is very common affair to see as companies are in constant need for raising capital for reasons like expansion of business, exit of private equity investors. Additionally, listing companies on the stock exchange ensures greater visibility and monetisation of true value of business. However, listing of companies also requires greater compliances costs, strict governance provisions and to protect minority share-holders interests too, which most often results in less flexibility. As a result, sometimes, companies do opt to voluntarily delist itself from the stock exchanges. There are also cases where due to need of regulatory compliances, stock exchanges require certain companies to delist compulsorily.
Following are modes of delisting of companies:
Mode 1: Voluntary Delisting;
Mode 2: Compulsory Delisting;
Mode 3: Partial Delisting via Scheme of Arrangement;
Mode 4: Delisting of stressed assets
Reader can understand each mode of delisting in more details by clicking on the link.
While mode 1 and 2 are governed under Securities and Exchange Board of India (Delisting of Equity shares) Regulations, 2009 (“SEBI Delisting Regulations”), Mode 3 is governed under regulation 37 of the SEBI (Listing Obligations and Disclosure Requirements), Regulations, 2015, (“SEBI LODR Regulations”) r.w. SEBI Circular No. CFD/DIL3/CIR/2017/21 dated March 10, 2017 and Mode is governed under Insolvency and Bankruptcy Code (“IBC”).
As per SEBI Delisting Regulations, following are the restrictions for carrying out delisting:
· Delisting pursuant to buyback of shares.
· Delisting of shares where preferential allotment is made by the company.
· Unless 3 years have passed from the date of listing of equity shares when companies want to delist convertible securities.
· When the promoter or promoter group wants to exit.
· When any entity belonging to the promoter or promoters’ group was sold in six months.
Further there is restriction on usage of surplus funds available with the listed company directly or indirectly.
As per SEBI Delisting regulation, post delisting, procedure is completed, a window is open for public shareholders to tender their shares to the Company. Such window is open for the period of 1 year from the date of delisting of shares. However, inspite of this, there may be cases where few minority shareholders are still on the capital table of unlisted company as they might not tender their shares. In such cases, unlisted company can go through restructuring exercise and where minority shareholders are given an exit.
Few of such restructuring modes, interalia, are as under:
(i) Direct Purchase of minority shareholders (Enabling section 236 of the Companies Act, 2013):
Companies Act, 2013, provides for purchase of minority shareholding by promoters of unlisted company. Under this mode of acquisition by promoters, shares of minority shareholders can be acquired at delisting exit price itself, without requiring any additional approval from any government authorities.
(ii) Selective Capital Reduction:
Another route of selective capital reduction may also be adopted by unlisted companies, where consideration for exit by minority shareholders gets discharged by unlisted company. Such selective capital reduction requires unlisted company to file for scheme of reduction of capital with National Company Law Tribunal, for obtaining approval.
As delisting of listed company enables management of the company to achieve flexibility and independence in carrying out various business functions, there is also need for companies to consider various tax and regulatory factors before going into delisting procedure. Also, usually, frequently traded shares are resulting into higher premium, which promoters must take into consideration prior to filling for delisting procedure. Also, delisting requires outgo of funds from the pocket of promoters intending to takeover the company. Considering, stock markets in India are highly volatile, discovered price may be higher than the fair value of shares of such listed company.
As listing on the stock exchange is easier than managing a listed company, it is not easy run-way while such listed company intends to delist considering tax, regulatory and commercial aspects.
For more detailed discussion on the above subject, please feel free to connect at contact@devadhaantu.in
