Delisting is a crucial process in the world of finance and stock markets, referring to the removal of a company’s securities from the stock exchange. In India, the Securities and Exchange Board of India (SEBI) is currently reevaluating the delisting regulations for listed companies to address share manipulation concerns.
What is Delisting?
Delisting is the procedure through which a listed company’s securities are taken off the stock exchange. Once delisted, the shares of the company can no longer be traded on the exchange, leading to a significant change in the company’s relationship with the stock market. Delisting can occur either voluntarily or compulsorily.
Voluntary Delisting
Voluntary delisting occurs when a company chooses to remove its securities from the stock exchange. This decision may be driven by various factors, such as restructuring, mergers, acquisitions, or when the company’s management believes that the costs and regulatory requirements associated with being a listed entity outweigh the benefits.
Compulsory Delisting
On the other hand, compulsory delisting happens as a punitive measure when a company fails to meet its obligations as per the listing agreement within the stipulated timeframes. It could be due to non-compliance with disclosure norms, submission requirements, or other violations of SEBI regulations.
The Role of SEBI
SEBI, as the regulatory body, plays a vital role in overseeing the delisting process. It sets out the guidelines and procedures that companies must adhere to if they decide to delist voluntarily or face compulsory delisting. SEBI’s role is crucial in maintaining transparency and fairness in the delisting process to protect the interests of minority shareholders.
Reverse Book-Building Process
The reverse book-building process is a critical mechanism used for price discovery during delisting events. Price discovery refers to the process of determining the appropriate value at which a company’s shares should be bought back from the public shareholders. This process aims to ensure a fair price for the shareholders while providing an exit opportunity.
How does Reverse Book-Building Work?
Price Collection Phase: During the reverse book-building process, the company announces the intention to delist, specifying the floor price—the minimum price at which the company will buy back shares from the public shareholders. The company sets a specific period during which shareholders can submit their offers to sell their shares at various prices above or equal to the floor price.
Gathering Offers: Shareholders, including retail and institutional investors, participate in the process by submitting their offers. They indicate the number of shares they are willing to sell and the respective price at which they want to sell them.
Price Determination: At the end of the offer submission period, the company analyzes all the offers received and determines the final buyback price based on the demand and supply of shares at different price points. The objective is to arrive at a price that encourages a sufficient number of shareholders to participate and ensures a fair exit opportunity.