When Stocks Say Goodbye: Understanding Delisting and its Impact on Investors

Investing in the stock market can be an exciting and potentially lucrative venture. As investors, we often hear about companies being listed on stock exchanges, but have you ever wondered what happens when a stock is delisted? In this blog post, we will explore the reasons behind delisting, and the procedure involved, and shed light on some notable companies that have experienced delisting.
What is Delisting?
Delisting refers to the removal of a company's stock from a stock exchange. When a stock is delisted, it is no longer available for trading on the exchange, leaving investors unable to buy or sell shares through the exchange. Delisting can occur for various reasons, and it typically has significant implications for the company involved and its investors.

Reasons for Delisting:
Non-Compliance: One of the primary reasons for delisting is when a company fails to meet the listing requirements set by the exchange. These requirements may include minimum financial standards, such as maintaining a certain market capitalization, minimum share price, or meeting specific accounting and reporting standards. If a company fails to comply with these requirements, the exchange may initiate the delisting process.

Bankruptcy or Financial Distress: Companies that declare bankruptcy or face severe financial difficulties may also be delisted. In such cases, the stock's value often deteriorates significantly, making it unsuitable for continued trading on the exchange.

Merger or Acquisition: In certain cases, a company may be delisted due to a merger or acquisition. When two companies combine or one company acquires another, the listed entity may cease to exist as a separate entity, resulting in the delisting of its stock.
The Delisting Procedure:
Delisting is a formal process that involves several steps and requires approval from the relevant stock exchange. The exact procedure may vary depending on the exchange's rules and regulations. However, a typical delisting process includes the following stages:

Notice of Non-Compliance: If a company fails to meet the listing requirements, the exchange will issue a notice of non-compliance, informing the company about the deficiencies and giving them an opportunity to rectify the situation.

Delisting Hearing: If the company fails to comply with the exchange's requirements within the given timeframe, a delisting hearing is conducted. During the hearing, the company has an opportunity to present its case and explain any mitigating factors.

Exchange Approval: Following the hearing, the exchange's regulatory body reviews the company's case and determines whether to approve the delisting request. If approved, the exchange will announce the delisting date.

Post-Delisting: After delisting, the stock may continue to trade on alternative trading platforms, such as over-the-counter (OTC) markets. However, liquidity and investor interest in the stock may decrease significantly, making it challenging to execute trades.

Certainly! Here are a few examples of companies that have been delisted from Indian stock markets:
Kingfisher Airlines: Kingfisher Airlines, owned by Vijay Mallya, was a prominent Indian airline that faced financial difficulties and eventually ceased operations in 2012. The company's stock was delisted from the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) in 2015.

Satyam Computer Services: Satyam Computer Services, an Indian IT services company, was involved in a major accounting scandal in 2009. The company's founder, Ramalinga Raju, admitted to inflating profits and falsifying accounts. Satyam's stock was delisted from the BSE and NSE in 2009.

Essar Oil Limited: Essar Oil, an integrated oil and gas company, was delisted from the Indian stock exchanges in 2015. The delisting followed a voluntary open offer by Essar Oil's promoters, which led to the withdrawal of the company's shares from the BSE and NSE.

Reliance Petroleum Limited: Reliance Petroleum, a subsidiary of Reliance Industries Limited, operated a refinery in Jamnagar, Gujarat. Due to changes in the business strategy and integration plans, Reliance Petroleum's stock was delisted from the Indian stock exchanges in 2009.

Manpasand Beverages Limited: Manpasand Beverages, a fruit juice manufacturer, faced allegations of tax evasion and other irregularities in 2018. As a result, the company's stock was suspended from trading on the BSE and NSE, and later in 2020, it was delisted from the exchanges.
Delisting can have significant consequences for both companies and investors

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