Individuals invest in stocks to earn better returns in the long run. They invest in them to supplement their incomes in the future. But what if the stocks that you bought from the market gets delisted. What should be its negative effect on the stakeholders? In this article, you will find detailed information on What Happens When Your Stocks Get Delisted From The Market?
Accordingly, the delisting of products could be due to voluntary and involuntary reasons. Let’s dive into what does voluntary, and involuntary delisting implies? And what is the aftermath in these situations? What happens in each of these delistings from the stock market?
What Is Voluntary Delisting?
In this article
Voluntary delisting implies that the company has been willing to opt for permanent removal of stocks. The company may do so when it decides to go private or mergers have taken place. In the voluntary delisting, the company offers to pay shareholders to return the shares held by them.
Then the company eliminates the entire stock from the exchange market. The company has to provide 2 options to sell delisted stocks. These options are based on principles and norms set in by the stock market. Meanwhile the whole process is different for IPOs.
How To Sell The Stocks When Voluntary Delisted?
Lets read about the two options :
1. Offer To Offload Shares In A Reverse Book Building Method:
The promoter will offer to buy back all the shareholders’ shares by the reverse book building process. There the company issues a public statement and sends an offer letter to the shareholders. Here, an individual possessing stock can give up stocks through their respective stockbrokers. Shareholders will get money under the offer provided by the company. The shareholders have a choice to accept or to offer another price. But it depends upon the promoter to accept it or not.
If a company acquires 90% of the total listed stocks, then the company gets delisted successfully. Until then, it remains listed.This facility has an open window of one year only. Moreover, this time period starts from the day when the company publicly announces it’s delisting.
If you were unable to sell your shares or didn’t do the same, then that brings you to the second option. Under this option, you hold your shares until you find a buyer for it.
2. Hold Your Shares Until You Find A Buyer Over The Market :
Here comes the challenging part of the voluntary listing. If you could not sell them during the reverse book method, then getting a fair price here would be difficult. You will have to find a buyer over-the-market(OTM). This would be difficult as there will be a decline in liquidity and demand. It would take a long time to sell shares you possess. So, it would be best if you had patience over a long period. As the reverse buyback opportunity get over, the price takes a dip in the long run.
What Is Involuntary Delisting?
Next in comes the involuntary delisting. This the common type of delisting that happens from time to time for different companies. From this perspective, the delisting negatively affects the shareholders. It happens when the promoter is forced to remove stocks from the market. The reasons for this can be non-compliance with listing guidelines, late filing of reports, etc. But bankruptcy stands to be the primary reason for all of this.
Since involuntary delisting comes as a negative onto the share rates. Let us look at-
How To Sell These Stocks In Case Of An Involuntary Delisting?
Suppose the promoter is still interested in getting the share. Then, they have to give in price or buyback the shares. And the value of these shares is not decided by the promoter. An independent evaluator comes into the play and lays down the listing prices. In this situation, shares hold no value in the market after delisting. But this does not affect your ownership of the shares in the market.
They can be a boon or a bane depending upon the path chosen. It is upon you if you want to hold on to the shares portfolio for a long time or give it up to earn a lesser amount. But these decisions are to be taken with great thought and analytical thinking.
NSE and BSE are the main stock market in India. Any company in good shape and condition always trade stocks on them. You can assume the stocks to be a better bet when they are listed on these markets. If the shares are delisted from the market, then it means that they are delisted from the NSE and BSE. This implies that these stocks are with you, and no one can snatch them from you, and you are the rightful owner. But with the delisting of share, the market value of these shares sunk. You have a limited/restricted market to sell them and get returns on them, which is not a good sign for the expected returns.
What is Stock Delisting?
Share delisting is defined as the removal of listed stocks from a stock exchange platform. This implies that it could no longer be traded in the stock market. It is the permanent removal of the stocks from the stock market. There would be no one looking to buy that Company’s stocks once it is delisted. The delisted shares mean that they could no longer be traded in the National Stock Exchange(NSE) and Bombay Stock Exchange (BSE). These are the major stock trading markets in India.
Why The Stocks Get Delisted?
The stock exchange runs on predefined rules and regulations. The company has to fulfill if it expects its stocks to be documented in the exchange market. If a company fails to fulfill, they may be forced to give up their listing. Bankruptcies, takeovers of mergers and stock performances, insufficient market capitalization, etc. also account for the reason for the company to get delisted.
Frequently Asked Questions
1. What happens to the ownership over the stocks if the shares get delisted?
2. What are the effects of private buyouts, if I decide not to sell them in reverse booking method?
3. What role does liquidity of stocks play in the delisting of stocks?
But if your stocks are delisted, then you will probably have to trade them over the counter market. OTC is hard to be assessed in contrast to a manner in which we can access the NSE market.
You will have to get a broker to get this done. Moreover, it would be nearly impossible to sell them once your stocks get delisted. This is because there is no significant value for them in the market. Hence, liquidity in the market decreases.
4. When does a decline in the value of stocks happens?
5. Delisted stocks, once delisted, are hard to be brought back, but can it ever come back in the exchange market?
According to this, a company taking a voluntary exit can come back again only after 5 years from the date it got delisted. Moreover, small businesses in case of binding up have to face a similar term.
But a company having compulsory/forced delisting will have to wait for at least 10 years to be listed again.
6. Do companies gain benefits or earn financially by delisting their stocks in the market?
The company, while being listed, is regulated to follow certain norms and actions.
The principles include publishing their financial statements and quarterly reports to make them public. The companies that are facing bankruptcy or related issue may want to hide these from their investors so that the trust of the investors is not pulled off.
But they don’t see delisting as the possible solution as it would not do any good for them.
7. What happens if the company does not provide OTC(over the counter) option to the shares that got delisted?
As was the case with the company Robinhood that did not offer any OTC trading.
So, you could not buy more shares of the delisted stock. But you have authority over your shares. If a buyer is interested in buying your shares that you can do so. But the buyer must be interested in buying them too.
8. What are the primary requirements that are required to be listed in NYSE stocks?
For example, then the primary requirements that the company is to abide include a minimum of at least 400 shareholders, a minimum price per share of $2, and a minimum market cap of $50 million for the shares.
9. What is the problem with OTC traded?
Similarly, all the investors that possess these stocks starting selling in bulk, lowering the prices further. This forces the company towards the fall in the hands of a bankruptcy.
But some people are always willing to take chances, but very few. So, delisted stocks are not for faint hearts.
10. Are there any benefits of delisting from the share market to stockholders?
It is a nightmare, but if you know to play and have a strong heart, then these stocks can bring wonders to you. If you find the right buyer, then you could have money that you couldn’t have made earlier, even if stocks were listed. But this requires great patience and a cunning mind-set.
The Stock Exchange market provides opportunities for people to invest in companies. An individual invests in companies in which he/she sees a better return in the future. But they require careful supervision to earn those profits in the long run. The company’s stock that you bought may get delisted from the exchange market. There can be various reasons, and this can badly hit your returns. The company may get delisted depending on voluntary and involuntary reasons. But this time requires patience from the individual. You need to make the best decision which you think would be great for yourself. This should be done by critically analyzing the situation as the stock market is just a reflection of your market understanding.