Delisting of Securities from Stock Exchange

Delisting of Listed Companies

‘Delisting’ means permanently delist of the securities of a listed company from the Stock Exchange. Delisting differs from suspension or withdrawal of admission to dealing of listed securities. It is the reverse procedure of Listing and also known as ‘reverse book building process’.

Types of Delisting;

a) Voluntary Delisting: delisting of securities of a body corporate voluntarily by a promoter or an acquirer or any other person other than the stock exchange(s), i.e., a listed Company seeks delisting of securities on its own motion.

b) Compulsory Delisting: a listed Company is compelled by the Stock Exchange to delist its securities.

Procedure for Voluntary Delisting of a Listed Company

Securities And Exchange Board of India (Delisting of Equity Shares) Regulations, 2009 and SEBI (Delisting of Equity shares) (Amendment) Regulations 2015 deal with the delisting procedure.

Why Companies Opt for Voluntary Delisting?

The Company may opt for voluntary delisting for various reasons, which may include the following:

a) Promoter wants complete control of the company,

b) Strategic buyout and new investor would like to have control

c) The market value does not reflect the true intrinsic value of the Company

d) Corporate Restructuring

e) Unsatisfactory fundraising in the stock market

Procedure for delisting

1. Convene a Board Meeting (Regulation 8 (1) (a))

The proposed delisting shall be approved by a resolution of the board of directors of the company in its meeting.

2. Outcome of Board Meeting to Stock Exchange (SEBI (LODR) Regualtion,2015)

The decision of the board meeting that the Board of directors has proposed to delist the company from the exchanges be sent to the exchanges.

3. Special Resolution Through postal Ballot (Regulation 8 (1) (b))

The prior approval of shareholders of the company be taken by special resolution to be passed through postal ballot, disclosing all material facts in the explanatory statement sent to the shareholders in relation to such resolution.

Note: The special resolution shall be acted upon if and only if the votes cast by public shareholders in favour of the proposal amount to at least two times the number of votes cast by public shareholders against it.

4. Application for In Principal Approval to Concerned Stock Exchange (Regulation 8(1)(c )

The company makes an application to the concerned recognized stock exchange for in-principle approval of the proposed delisting in the form specified by the recognized stock exchange. The application shall be accompanied by an audit report as required under regulation 55A of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 in respect of the equity shares sought to be delisted, covering a period of six months prior to the date of the application.

5. In principal Approval by the Exchange (Regulation 8 (3))

The recognized stock exchange shall dispose off the Application of the In Principal approval complete in all respects within a period not exceeding five working days from the date of receipt of such application.

6. While considering an application seeking in-principle approval for delisting, the recognised stock exchange satisfy itself on the following grounds – (Regulation 8(4))

a. compliance with clause (b )of sub-regulation (1);

b. The resolution of investor grievances by the company;

c. Payment of listing fees to that recognised stock exchange;

d. The compliance with any condition of the listing agreement with that recognised stock exchange having a material bearing on the interests of its equity shareholders;

e. Any litigation or action pending against the company pertaining to its activities in the securities market or any other matter having a material bearing on the interests of its equity shareholders;

f. Any other relevant matter as the recognised stock exchange may deem fit to verify.

7. Appointment of Merchant Banker (Regulation 10 (4))

The promoter/acquirer appoint a merchant banker registered with the Board and such other intermediaries as are considered necessary. It should not be related to the Promoter group.

8. Determination of Floor Price (Regulation 15)

a. The offer price shall be determined through book building in the manner specified in Schedule II of the requlation, after fixation of floor price under sub-regulation (2) and disclosure of the same in the public announcement and the letter of offer.

b. The floor price shall be determined in terms of regulation8 of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011,as may be applicable.]

9. Opening of Escrow account. [Regulation11]

The promoter/ acquirer open an escrow account and deposit therein the total estimated amount of consideration calculated on the basis of floor price and number of equity shares outstanding with public shareholders. The escrow account shall consist of either cash deposited with a scheduled commercial bank, or a bank guarantee in favour of the merchant banker, or a combination of both.

Where the escrow account consists of deposit with a scheduled commercial bank, the promoter shall, while opening the account, empower the merchant banker to instruct the bank to issue banker’s cheques or demand drafts for the amount lying to the credit of the escrow account, for the purposes mentioned in these regulations, and the amount in such deposit, if any, remaining after full payment of consideration for equity shares tendered in the offer and those tendered under sub-regulation (1) of regulation 21 shall be released to the promoter Where the escrow account consists of a bank guarantee, such bank guarantee shall be valid till payments are made in respect of all shares tendered under sub-regulation (1) of regulation 21.

10. Public Announcement [Regulation 10]

The promoters /acquirer of the company shall within one working day from the date of receipt of in- principle approval for delisting from the recognized stock exchange, make a public announcement in at least one English national daily with wide circulation, one Hindi national daily with wide circulation and one regional language newspaper of the region where the concerned recognized stock exchange is located.

The public announcement contain the material information including the information specified in Schedule I –

1. The floor price and the offer price and how they were arrived at.

2. The dates of opening and closing of the offer.

3. The name of the exchange from which the equity shares are sought to be delisted.

4. The manner in which the offer can be accepted by the shareholders.

5. Disclosure regarding the minimum acceptance condition for success of the offer.

6. The names of the merchant banker and other intermediaries together with the helpline number for the shareholders.

7. The specified date fixed as per sub-regulation (3) of regulation 10.

8. The object of the proposed delisting.

9. The proposed time table from opening of the offer till the payment of consideration or return of equity shares.

10. Details of the escrow account and the amount deposited therein.

Listing details and stock market data:

a) high, low and average market prices of the equity shares of the company during the preceding three years;

b) monthly high and low prices for the six months preceding the date of the public announcement; and,

c) the volume of equity shares traded in each month during the six months preceding the date of public announcement.

11. Present capital structure and shareholding pattern.

12. The likely post-delisting shareholding pattern.

13. The aggregate shareholding of the promoter together with persons acting in concert and of the directors of the promoter where the promoter is a company and of persons who are in control of the company.

14. A statement, certified to be true by the board of directors of the company, disclosing material deviation, if any, in utilisation of proceeds of issues of securities made during the five years immediately preceding the date of public announcement, from the stated object of the issue.

15. A statement by the board of directors of the company confirming that all material information which is required to be disclosed under the provisions of continuous listing requirement have been disclosed to the stock exchanges.

16A: A statement by the board of directors of the company certifying that:-

a) the company is in compliance with the applicable provisions of securities laws;

b) the acquirer or promoter or promoter group or their related entities have not carried out any transaction during the aforesaid period to facilitate the success of the delisting offer which is not in compliance with the provisions of sub-regulation (5) of regulation 4;

c) the delisting is in the interest of the shareholders.]

16. Name of compliance officer of the company.

17. Specified Date

18. It should be signed and dated by the promoter. Where the promoter is a company, the public announcement shall be dated and signed on behalf of the board of directors of the company by its manager or secretary, if any, and by not less than two directors of the company, one of whom shall be a managing director where there is one.

11. Specified Date (Regulation 10 (3))

A date not later than thirty working days from the date of the public announcement, to be determined on which the names of shareholders to whom the letter of offer shall be sent is determined. The person ineligible to participate in book building process. – (Regulation 14)

1. A promoter/ an acquirer or a person acting in concert with any of the promoters.

2. Any holder of depository receipts issued on the basis of underlying shares held by a custodian and any such custodian except if the holder of depository receipts exchanges such depository receipts with shares of the class that are proposed to be delisted.

12.Dispatch of Letter of offer [Regulation 12]

The promoter/acquirer shall dispatch the letter of offer to the public shareholders of equity shares, not later than two working days from the date of the public announcement. The letter of offer shall contain all the disclosures made in public announcement and such other disclosures as may be necessary for the shareholders to take an informed decision. The letter of offer shall be accompanied with a bidding form for use of public shareholders and a form to be used by them for tendering shares under sub-regulation (1) of regulation 21.

13. Duration of the Bidding period [Regulation13]

The date of opening of the offer shall not be later than seven working days from the date of the public announcement and shall remain open for a minimum period of five working days during which the public shareholders may tender their bids.

Final Price (SCHEDULE II) The final offer price shall be determined as the price at which the maximum number of equity shares is tendered by the public shareholders.

14. If the Final Price is accepted

Minimum number of equity shares to be acquired. [Regulation 17]

An offer made deemed to be successful if post offer, the shareholding of the promoter (along with the persons acting in concert) taken together with the shares accepted through eligible bids at the final price determined as per Schedule II, reaches the higher of –

a. ninety per cent. of the total issued shares of that class excluding the shares which are held by a custodian and against which depository receipts have been issued overseas; and

b. atleast twenty five per cent of the public shareholders holding shares in the demat mode as on date of the board meeting referred to in sub regulation (1B) of regulation 8 had participated in the Book Building process

Public Announcement after closure of offer. [Regulation 18]

Within five working days of closure of the offer, the promoter/acquirer and the merchant banker shall make a public announcement in the in at least one English national daily with wide circulation, one Hindi national daily with wide circulation and one regional language newspaper of the region where the concerned recognized stock exchanges are located regarding the success of the offer in terms of regulation 17 along with the final price accepted by the acquirer.

Payment of consideration [Regulation 20]

The promoter shall immediately on ascertaining success of the offer, open a special account with a banker to an issue registered with the Board and transfer thereto, the entire amount due and payable as consideration in respect of equity shares tendered in the offer, from the escrow account. All the shareholders whose equity shares are verified to be genuine shall be paid the final price stated in the public announcement within ten working days from the closure of the offer.

Final Application to Stock Exchange (Regulation 8 (5))

A final application for delisting be made to the concerned recognised stock exchange accompanied with such proof of having given the exit opportunity in accordance with the provisions of Chapter IV, as the recognised stock exchange may require.

If after the proposed delisting, the equity shares would not remain listed on any recognized stock exchange having nationwide trading terminals, exit opportunity shall be given to all the public shareholders holding the equity shares sought to be delisted. (Regulation 6 (B)) Of Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009.

Delisting Order

The recognized stock exchange shall dispose of the Application of the delisting complete in all respects and pass the delisting order.

Right of remaining shareholders to tender equity shares. [Regulation 21]

Remaining public shareholder holding such equity shares may tender their shares to the promoter upto a period of at least one year from the date of delisting and, in such a case, the promoter shall accept the shares tendered at the same final price at which the earlier acceptance of shares was made. The payment of consideration for shares accepted under sub-regulation (1) shall be made out of the balance amount lying in the escrow account.

Release of amount in the escrow account

The amount in the escrow account or the bank guarantee be released to the promoter after all payments are made in respect of shares tendered under sub-regulation (1).

15. If the Final Price is not accepted

Returning of the Equity Shares tendered (Regulation 16 (2))

Where the promoter /acquirer decides not to accept the offer price so determined, the promoter shall not acquire any equity shares tendered pursuant to the offer and the equity shares deposited or pledged by a shareholder pursuant to paragraphs 7 or 9 of Schedule II shall be returned or released to him within ten working days of closure of the bidding period;

Minimum number of equity shares not received in the Bidding Process.

Failure of Offer (Regulation 19)

Where the equity Shares deposited or pledged by a shareholder under the Bidding Process shall be returned or released to him within ten working days from the end of the bidding period and the escrow account opened under regulation 11 shall be closed.