Summary

When a company’s stock is delisted, it is removed from the stock exchange either voluntarily, to go private or switch exchanges, or involuntarily, due to non-compliance with regulations. Voluntary delisting can be a strategic move for cost-saving, buyouts, or quick decision-making, but may signal trouble to clients. Involuntary delisting often results from failing to meet market criteria and can devalue shares.

What Happens When A Stock Gets Delisted Company?

Delisting Of Shares

A listed security is said to be delisted when it is taken off a stock exchange. Delisting of securities can happen voluntarily or involuntarily and typically happens when a business shuts down, files for bankruptcy, merges, doesn't match the listing criteria, or wants to go private.

Types of Delisting:

1. Voluntary delisting

   This happens when publicly traded corporations opt to do so; as a result, they typically start trading privately once again. But occasionally businesses delist only to go to a different exchange.

2. Involuntary or Forced delisting

   Delisting that is either forced or involuntary occurs when a firm no longer satisfies the exchange's minimum requirements, forcing the company off the market. Violations may be connected to failure to meet minimum requirements for market capitalization, stock price, or document filings.

Reasons For Companies To Choose Delisting:

• Cost-Saving Measures - Adhering to laws and regulations has a material cost. When a business decides there is no longer a financial advantage to being publicly traded, a voluntary delisting may take place.
• Buyout - During a buyout, the purchasing party frequently takes the acquired business private. Private equity firms and bigger acquiring firms that will be buying most or all of the stock of the acquired company.
• Accelerated Decision-Making -  Companies can limit shareholder and board input by delisting from the stock market and going private. This may enable them to make important decisions more quickly.
• Gaining a Quick Profit - If a stock is trading below its intrinsic value, the corporation may repurchase its own shares in order to gain money right away before delisting. In addition, this may benefit present stockholders. giving them significant gains.

However, there are drawbacks to voluntary delisting. A corporation won't be able to raise capital through the public markets if it requires funds. Additionally, even if delisting is voluntary, clients may see it as a sign of trouble within a business, which could result in a loss of market share.

What Happens To Shares Of A Delisted?

In the event of a voluntary delisting

The acquirer will use the reverse book-building procedure to purchase the shares directly from the shareholders. The acquirer sends an authorised letter to all of the shareholders advising them of the buyback. The shareholders also receive an official letter and a bid form. An offer is made to the shareholders. The shareholder might either accept the offer or decline it and continue to own the shares.

When the buyer purchases the necessary number of shares back, the shares are successfully delisted. The shareholders have the specified time frame in which to sell the shares to the promoters. Shareholders are required to sell on the Over-The-Counter or unlisted market if they fail to comply. Selling shares over the counter takes longer if you don’t know a trusted broker. When shareholders sell delisted stock to promoters within the repurchase window for a higher price, they profit significantly. You may be able to make a brief profit as shareholders if the price drops after the buyback window closes.

In the event of a involuntary delisting

An impartial assessor establishes the price for the buyback of the delisted stock in the event of an involuntary delisting. Similar to voluntary listing, involuntary listing has no effect on share ownership, but if a company is delisted, the delisted equities are probably going to lose some value.

In India, a firm does not have to pay an exit amount if it is delisted from all stock exchanges other than the BSE and NSE. It continues to be tradable on the NSE and BSE. As a result, investors can always sell their shares.

Can These Stocks Be Relisted?

A delisted stock could, albeit infrequently, eventually be relisted on a significant exchange. The corporation would have to address every single reason why it was delisted in the first place in order to do that. This would imply that it would have to address its financial problems, avoid bankruptcy, and submit all required paperwork in order to resume compliance.

Delisting As An Investment Strategy

The government made it essential for businesses to make 25% of their shares tradeable to the general public in 2010. Promoters who owned more than 75% of the securities were forced to delist their securities as a result of this law. There was an upsurge in investors who were eager to invest in businesses where the promoters own 80–90% of the securities as a result. When the promoter decides to purchase back shares at a premium price, the goal was to realise enormous profits.

Conclusion

A stock may be delisted and removed from the exchange freely or involuntarily. When this occurs, the stock either undergoes a restructuring and becomes private, or it resumes over-the-counter trading.Brokers and dealers in the unlisted market such as Sharescart can help you sell your delisted shares even after the buyback window closes. The decision to sell the shares of a delisted company solely lies with the seller, if they want they can either sell the shares during the company buyout or afterwards. A delisted company can always relist itself but it needs to show its financial status and the reason to delist in the first place.