Delisting: meaning, how it works in India and examples

A listed company's shares trade on exchanges such as the NSE and the BSE. Delisting removes them from those exchanges. After that, shares cannot be bought or sold on the exchange, and the company no longer faces the listing disclosure rules.

Delisting is the reverse of an IPO. A company may delist because its owners want more control, because a parent wants to buy out minority holders, because the company is being merged or because the listing no longer serves a purpose.

In voluntary delisting, the promoters or an acquirer offer to buy the shares held by the public and apply to take the company off the exchange. Public shareholders decide whether to sell, and the offer only succeeds if enough shares are tendered.

In compulsory delisting, the exchange removes the company for reasons such as persistent non-compliance with listing rules or serious defaults. Public holders are usually offered an exit at a fair value determined by an independent valuer, but the experience is generally worse than in a voluntary offer. Compulsory delisting is rare for well-known startups.

In reverse book building (RBB), shareholders who want to sell state the price at which they would tender. The promoters set a floor price using rules in the regulations, and shareholders bid at or above it. The discovered price is the one that lets the acquirer reach the required holding.

The offer succeeds when the acquirer's holding after the offer passes the threshold set by the rules, 90% of the total shares under the original 2021 framework, and when a minimum share of the public shareholding has been tendered. If the acquirer is not satisfied with the discovered price, it can reject it, and the offer fails.

Before the bidding, the board of the company approves the proposal, a special resolution is passed with a separate majority among public shareholders, and an independent process is followed. Exchange approvals come last.

SEBI notified amendments on 25 September 2024. They added a fixed price method as an alternative to RBB for frequently traded shares, where the acquirer offers a set price that is at least 15% above the floor price, as reported by Business Standard. Another source describes the benchmark differently, so check the notification.

The amendments also changed the counter-offer mechanism. Under the original rules, a counter-offer was possible only if the acquirer's holding after the offer, including tendered shares, exceeded 90%. Reports say the threshold has been lowered to 75%, provided that at least 50% of the public shareholding is tendered. The counter-offer price must be at least the higher of the promoters' indicative price and the volume-weighted average price of tendered shares.

Adjusted book value was added as an input for the floor price. A 60-day period let acquirers use the old rules after the notification date. Read the amended regulations for the exact figures, since summaries vary.

If you tender in the offer and it succeeds, you are paid the exit price and your shares go to the acquirer. If you do not tender, you still hold the shares, but they no longer trade on an exchange, so selling becomes difficult.

The regulations let remaining holders tender their shares at the same exit price for a period after delisting, so a holder who missed the main offer is not abandoned. The offer document gives the length and the process.

Check the tax position of any sale with a professional. The gain or loss on a delisting sale is treated as a sale of shares.

Listed companies in India must keep a minimum share of their stock with the public, generally 25%. A promoter who wants to go above 75% has to either bring down the holding or leave the exchange. This is one reason promoters sometimes opt for delisting rather than trying to stay listed.

Delisting is also used after a takeover. An acquirer that crosses the open offer threshold in a listed company may end up with most of the shares and then delist the rest. The takeover code and the delisting rules work together, so a headline about an open offer often precedes one about delisting.

Startups that listed recently can delist too, but each case runs through the approvals in the regulations. Check each case against the current rules.

For startups that listed, delisting is a way back to private ownership. It usually comes after a period of weak valuation, a takeover or a restructuring. It can also follow a merger where a parent absorbs a listed subsidiary.

For venture investors, a listed company is an exit route. A delisted one is the opposite. Small and medium enterprise (SME) platform companies can also delist, and their rules are separate from the main board.

Delisting offers in India have come from multinational subsidiaries buying out minority holders, from promoter groups and from companies merging into a parent. Some have succeeded at a premium, while others failed because shareholders asked for a price the acquirer would not pay.

The cases reported in the press show the pattern: a floor price is announced, a bidding window opens, and the acquirer decides after seeing the discovered price. For any specific company, read the exchange filings and the letter of offer rather than relying on a summary.

One more point is timing. A delisting offer has a fixed bidding period, and the final outcome is announced after the exchange publishes the result. Shares stop trading only once the exchange approves the delisting, so a successful offer is not the same as the shares being removed that same day. Follow the exchange notices for the date of the last trading day.

Check whether the story is about a proposal, board approval, the floor price or the actual outcome. A proposal does not mean the delisting will happen. Check the floor price against the market price, the acquirer's current holding and the exit price. This guide is general information, not legal, tax or investment advice.