Relisting Of Delisted Company: As soon as a company announces plans to go public, the media and investors who are waiting for the IPO are excited.
A new stock enters the exchanges and potential money is to be made. It gets everyone involved in the commotion. This is what we all know as a listing of a company.
But when a company decides to take its shares off the stock exchange, it is known as delisting. If all of this sounds a little complicated, don’t worry.
We’re going to try and simplify all the basics of relisting, delisting, and the reasons, and also answer some interesting scenarios such as the relisting of delisted company.
What Is Delisting?
Delisting is when a publicly listed company present on the stock exchanges is permanently removed from buying or selling. A delisting can happen for different reasons, and it is not necessarily bad news.
Why Do Companies Delist?
There are mainly two types of delisting in the stock market –
1. Voluntary Delisting
A voluntary delisting is when the company intentionally makes the formal request to delist its shares from the stock exchanges.
There are several valid and genuine reasons that a company may choose to do this – A merger after being acquired by another company, internal restructuring, etc.
Also, when this happens, the existing shareholders need not worry as the company would have prepared a contingent plan to make sure investors get their money back.
2. Compulsory/Forceful Delisting
This is the type of delisting that every investor fears. Here, the stock market regulator and watchdog SEBI makes the decision to forcefully delist a company from the stock exchanges.
When such news makes headlines, the stock price takes a severe fall, bringing more bad news for investors. SEBI makes the call to delist a company when they are non-compliant with the regulations set forth by the market regulator.
These regulations were drafted to safeguard the investors and other market participants, and failure to do so can take the company off the exchanges.
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Reasons For Delisting
Companies can find themselves out of the stock market for different reasons, and investors can’t help but worry when the news breaks out.
Relisting Of Delisted Company
Now that you’ve understood the basic idea of delisting, let’s talk about the relisting of a delisted company. Relisting is the opposite of delisting, where a company decides to issue its shares on the market again.
But, it is not as easy as it sounds. SEBI has strict rules and regulations regarding the relisting process and it depends on the manner in which the company exited the stock exchanges.
- If the company delists voluntarily, the company will have to wait 5 years from the date of delisting to get apply for a request to get relisted again.
- If the company delists compulsorily, it will have to wait for a full 10 years from the date of delisting to request for relisting again.
Both NSE and BSE have the full list of stocks that have been delisted from the respective stock exchanges.
Learning More About Relisting
In the section above, we mentioned the criterion where companies can relist themselves on the stock exchanges. But it’s not as simple as it seems.
For one, we must understand why the company was delisted in the first place. Usually, when scandals, bankruptcies, and insolvency proceedings take place, the company will have no choice but to delist.
When a relisted company decides to relist, the response for the reissue is often mixed. Investors will definitely consider the previous history of the company, when deciding whether to invest in it, especially a second time.
A stock that was once relisted can once again enter the markets, but the chances are low.
For example – If a company decided to voluntarily delist itself due to bankruptcy, to re-enter the markets, it would first have to resolve its bankruptcy issues that caused the delisting and then comply with SEBI’s requirements.
This includes a waiting period of 5 years in case of voluntary delisting. Insolvency proceedings are complex, and they usually involve selling the assets of the company to pay back major creditors.
This would effectively make the delisted shares worth nothing.
What Happens To Investors Of Delisted Shares?
SEBI, the stock market regulator in India, has mandated that a company that delists its shares from the stock exchanges is required to provide an exit opportunity to all its shareholders.
If a company delists, you still hold the shares of the company. As per SEBI’s mandate, the company will give you an opportunity to sell the shares when the company does a buyback, which is usually at a premium.
If you decide not to sell then you have two options.
Your options would be either to –
- Sell the shares on the over-the-counter market, which basically means finding a buyer outside of the stock exchange, or
- Hold onto the shares until the company relists and sells them to recover some part of your investment. But do realize that this could take years, even if you do decide to hold onto the shares. And even then, there is no sure promise that the company will indeed return to the markets and relist itself.
The relisting of delisted company can be an opportunity for shareholders to get their money back if they didn’t sell their shares and held onto them.
Reading through the process of relisting and how it affects investors, you can assume how important it is to do your own research when investing.
This is why the relisting of delisted company is a once-in-a-lifetime opportunity. Thank you for reading and happy investing!
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