Voluntary Delisting of a listed Company
Voluntary delisting is governed under SEBI (Delisting of Equity Shares) Regulations, 2009 (SEBI Delisting Regulations), and is further divided into 4 types, viz.,
Type 1: Voluntary delisting from all the recognised stock exchange;
Type 2: Voluntary delisting from one or some of stock exchange and continue to be listed in atleast one recognised stock exchange;
Type 3: Voluntary delisting of small companies and delisting by operation of law;
Type 4: Voluntary delisting of listed subsidiary company.
So, lets us understand in detail all the four kinds of voluntary delisting.
Type 1: Voluntary delisting from all the recognised stock exchange:
When promoter of the listed company intends to take-over the Company, exit to all the public shareholders is required to be given. For this purpose, detailed procedure has been listed down under SEBI Delisting Regulation so that none of the public shareholder’s interest gets adversely affected.
Accordingly, promoters as well as management of listed company are required to adhere to the detailed procedure as prescribed under SEBI Delisting Regulations. Initially, promoters are needed to intimate management of the listed company their desire to takeover company and accordingly, send letter to the listed company for its intention to acquire public shareholding beyond the limit of minimum public shareholding. Upon receipt of letter of intimation, board of listed company needs to approve the resolution for delisting. Upon obtaining approval from the board of the listed company, further approvals and procedure is required to follow.
Following are the key requirements for a successful voluntary delisting where SEBI may grant approval for delisting of shares of a listed company:
1. Shareholder’s approval: Prior approval of shareholders is mandatory by way of passing of special resolution through postal ballot. Shareholders needs to be given all the material facts pertaining to delisting. Additionally, approval of majority of public shareholders is also mandatory whereby majority is considered as 2/3 rd of total public share-holding;
2. Price discovery for delisting: Initially floor price of shares of the company is determined with the help of merchant banker’s valuation. Based on the floor price, later, discovery price is needed to be arrived at based on bids received from public shareholders consenting to tender their shares in the delisting procedure, which is considered to be as reverse book building process. In case, price determined using reverse book building (“RBB”) process is not acceptable to promoters, promoters can make counter offer to the public shareholders.
3. Minimum Promoters Shareholding: Post price discovery as above, total promoter shareholding after considering shares tendered by public shareholders in bid process and shares held by custodians, needs to reach minimum 90% of the total shareholding of the company.
Above are the primary criteria for any voluntary delisting procedure to get approved by SEBI. In India, voluntary delisting is not very common phenomena as regulations around it are strict and requires adherence to common practises, especially protection of interest of minority shareholders. Thus, in many cases, efforts of companies to delist their companies has resulted into failure. However, recently in year 2020, many companies have opted for voluntary delisting and were successful.
Following is the list of companies filling application for voluntary delisting in FY 2020-21, some of which were not successful (list has been updated as on March 31, 2021):
Sr. No. | Name of the Company | Promoter shareholding at the time of delisting | Delisting size offer (INR) | Floor Price (INR) | Discovered Price / Exit Price (INR) | Status of voluntary delisting |
1 | Prabhat Dairy Limited | 50.10% | 492.28 Crores | 63.77 | 101 | Successful |
2 | Remi Elektrotechnik Limited | 74.85% | 1.40 Crores | 11.52 | 12.51 | Successful |
3 | Minda Finance Limited | 70.12% | 273.45 Crores | 1950 | 1950 | Successful |
4 | Hexaware Technologies Limited | 62.08% | 30.16 Crores | 264.97 | 475 | Successful |
5 | Brady and Morris Engineering Company Limited | 73.75% | 3.60 Crores | 61.05 | 750 | Unsuccessful Reason: Promoters rejected the discovered price determined upon RBB process, without making any counter offer |
6 | Vedanta Limited | 50.13% | 148 Crores | 87.25 | 300 | Unsuccessful: Promoters rejected the discovered price determined upon RBB process, without making any counter offer |
7 | Frontline Securities Limited | 72.97% | 9.27 Crores | 36.08 | 36.08 | Successful |
8 | Vyapar Industries Limited | 75% | 6.59 Crores | 43 | 43 | Successful |
9 | Fomento Resorts & Hotels Limited | 75% | 56.40 Crores | 141 | 141 | Successful |
10 | ABM International Limited | 74.70% | NA | NA | NA | Unsuccessful: Promoters withdrawn delisting offer owing to market condition due to Covid-19 |
11 | UP Hotels Limited | 88.39% | 9.65 Crores | 154 | On-going | |
12 | Adani Power Limited | 74.97% | 3,264.73 Crores | 33.82 | On-going | |
13 | Allcargo Logistics Limited | 70.01% | 682.07 Crores | 92.58 | On-going | |
14 | Xchanging Solutions Limited | 75% | 124.33 Crores | 44.64 | On-going | |
Prior to year 2020, delisting of shares was not very common unlike it can be seen above. From the FY 2017-2019, mode of voluntary delisting was adopted by only 5 listed companies. As delisting of 4 listed companies was successful, one company could not delist shares successfully owing to higher premium. Details of such unsuccessful voluntary delisting was Linde India Limited, where offer price by promoter was determined at INR 334/- per share over floor price of INR 276/- per share. However, discovered price determined by shareholders was INR 2,025/- per share, which is calculated at 506% premium over offer price. As premium was substantially high, promoters had rejected the delisting offer.
Considering, year 2020 was badly hit by novel pandemic, i.e. Covid-19, stock markets were not an exception especially during March, 2020 and April, 2020. As price of many companies slashed substantially during this time, many promoters opted for voluntary delisting and got success. However, shareholders, now a days are more aware and thus, companies having high intrinsic values could not get delisted as discovered price was determined considering such high intrinsic value. Major example of such unsuccessful delisting is Vedanta Limited.
Considering all the above factors, it would be interesting to see how trend delisting of shares of listed companies pans out post FY 2020-21.
Type 2: Voluntary delisting from one or some of stock exchange and continue to be listed in at-least one recognised stock exchange:
As explained in the title itself, under this kind of voluntary delisting, equity shares of the company are continued to remain listed on at-least one recognised stock exchange as there is no need of giving any exit opportunity to the shareholders. Company only needs to give public notice of its intention to delist its listed equity shares from the identified stock exchange(s) and give disclosure of all material facts in the first annual report immediately after such proposed identified delisting.
Type 3: Voluntary delisting of small companies and delisting by operation of law:
In this type of voluntary delisting, small companies can get delisted without any specific requirements of obtaining bid from the public shareholders for the determination of discovered price through reverse book building process unlike, as mentioned in Type 1 of the voluntary delisting procedure. Basically, such relief is provided to small companies to reduce compliance timeframe and costs associated with lengthy procedural requirements.
Small Company, here, would means (i) a company having paid up share capital not exceeding INR 10 crores and net-worth not exceeding INR 25 crores; and (ii) whose shares are infrequently traded on all the stock exchange (i.e. less than 10% of the total no. of shares are traded on the stock exchange in the preceding 12 months); and (iii) a company which is not suspended by any recognised stock exchange in relation to any non-compliance.
Further, additionally following are the key criteria that needs to be followed by small companies:
a. Exit price offered to public shareholders shall not be less than floor price determined as required in the Delisting Regulations;
b. Price as offered by promoters of the company shall be mentioned in the intimation letter along with proper detailed justification for same;
c. At-least 90% of the public shareholders give their consent in writing to the proposal for delisting. Consent could be either for tendering their shareholding in the delisting process or it could be for continuing to hold equity shares in the company even after delisting of company;
Recent examples of voluntary delisting of small companies are as under (list has been updated as on March 31, 2021):
Sr. No. | Name of the Company | Promoter shareholding at the time of delisting | Delisting size offer | Floor Price / Exit Price | Offer Price | Status of voluntary delisting |
1 | Ocean Agro (India) Limited | 69.86% | 3.76 Crores | 18.50 | 18.50 | Successful |
2 | AVTIL Enterprise Limited | 49.40% | 3 Crores | 148 | 148 | Successful |
3 | Shyam Telecom Limited | 66.16% | 2.35 Crores | 6.15 |
| On-going |
Type 4: Voluntary delisting of listed subsidiary company:
SEBI, through its board meeting held on September 29, 2020, has introduced an additional type of delisting under SEBI Delisting Regulations, whereby, listed subsidiary of a listed company can be delisted without undergoing RBB process and entire share capital of such listed subsidiary gets acquired by listed company from the public shareholders. Conditions needed to follow for such delisting is as under:
· Listed company and the listed subsidiary must be in the same line of business;
· Both the companies must be compliant with SEBI LODR Regulations;
· Approval of public shareholders is required whereby votes cast by public shareholders in favour of delisting must be at-least 2 times of the votes casts against delisting of company;
· At the time of delisting, Listed company and its listed subsidiary company must be listed for atleast 3 years and should not be suspended;
· Lastly, parent and subsidiary relationship between listed company and listed subsidiary company must be in subsistence for at-least 3 years.
Such additional type of voluntary delisting has been provided to reduce pro-longed timeline of otherwise voluntary delisting procedure. Further, such kind of delisting enables reduction in compliance burden on the listed subsidiary and reduces compliance cost at the group level. In order to avoid outflow of funds pursuant to such delisting, where requirement of acquisition of shares from public shareholders is required, mode of scheme of arrangement can also be followed where shares of listed subsidiary company get swapped for shares of listed company in the hands of public shareholders. Considering such provisions are newly inserted, precedents in such regards are yet to be seen.
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