Delisting from Exchange- A flavor Of the Season

Listing of a company on the stock exchange is a significant phenomenon for any company. It is a significant occasion for a company on the journey of its growth and development. It enables a company to raise capital while strengthening its structure and reputation.

Then why delisting from the exchange has become flavor of the season?

Vedanta Ltd, Hexaware Technologies, Adani power ltd, PSBs (due to amalgamation), United Spirits, and many more are going to join this league.

Predominantly, there are two ways of delisting from an exchange.

1. Compulsory delisting – Where companies are forced to go for delisting in want of complying with various norms or due to bankruptcy.

2. Voluntary delisting – Where companies are opting for going to delist on its own. Merger, a favorable opportunity for a promoter to increase its stakes in the organization, restructuring are few reasons for voluntary delisting.

 It is learned that the share price of many companies is biting the dust at this juncture. As understanding goes, the current battered share price of a company is not reflecting the true value of the firms. This will give a wrong signal to the potential investors or even bankers making it tough for the firm to raise the fund.

Since global markets are flooded with funds, there is a possibility that private investors would have proposed to buy a stake in the firm at a value higher than the secondary market.

Promoters may find great value in dollar terms in case they sell their stake to the global PE players as the rupee has depreciated more than 15% YOY.

For Voluntary delisting, it is mandatory to take consent from the board, investors, and regulatory body.

There must be consent from at least 90% of the investors. In other term, promoters must acquire a 90% stake in the company for delisting. The moment the stake of promoters goes up to 75%, the script seizes to be traded on an exchange.

After getting a nod from the board, companies go through a stringent process for completion of the entire process of delisting that takes almost 1-2-year basis cases.

The company sets an Indicative offer that is derived based on an average of previous 26 weeks' high and low stock prices. Further in-principle approval is taken from investors, Merchant banker is hired, an escrow account is being opened, Reverse book building is done to arrive final price to buy back shares from investors. If consent on pricing is done from both the party then the final offer letter is sent to the investors. Transactions are being executed and the whole delisting process is being completed.

Even after completion of all processes, if more than 10% of investors are not agreed for delisting due to any reasons then the company is bound to roll back the entire deal.

Few Instances-

Vedanta Ltd- Vedanta Ltd is a mining company led by Anil Agarwal. It deals with the production of aluminum, Gold, Zinc, Iron ore. Vedanta is a market leader in the production of many mining products. It is listed on NSE. Promoter holds 51.14% stake in the company, Retail and HNI investors together hold approx. 7.5% stake, rest is held by DII, FII, and FPI that is approx. 42.2% stake in the company. On 12th May, Vedanta announced that it will go for delisting and fixed indicative offer of Rs87.50. This announcement has raised many questions. In Q4, 2020, Vedanta posted a net loss of 12521 Crore. Net sales also declined by 16 % YoY to 19513 cr. For quite a few timeshares of Vedanta is also not doing well on the stock exchange. It is also learned that debt for the company is also mounting above Rs 50000 Cr overall. The closing price of the scripts on June 26, 2020, was Rs 111.30.

Investors have given their nod to go ahead with delisting. Now Vedanta Ltd is going to set the final offer price by the mean of reverse book building. Delisting will give an opportunity to promoter to acquire company stake at a very attractive price as the share price of Vedanta has depreciated more than 40% in a year.

Delisting of Vedanta Ltd will provide the group with enhanced operational and financial flexibility in a captive intensive business and is expected to support an accelerated debt reduction program in the medium term. Not to mention, no scrutiny by market regulator SEBI and lesser disclosure is the added comfort.

Adani Power- Adani Power also announced its move to delist from the exchange. The board has approved the delisting of its shares at a floor price of 33.82 apiece. Promoters hold 74.9 % in the company. Board told that this move will help the organization to undertake corporate restructuring acquisitions and exploring new financing structures.

Hexaware is another name on this list.

Diageo Plc is reportedly planning to delist its Indian arm United Spirits.

Delisting is a key theme in the Singapore equity market for quite some time. Every month 2 companies were going for delisting in 2019. Now, this theme seems to grapple the Indian equity market. We can see many companies are going to join the delisting spree in the coming days.

Source: Public Domain