MEANING OF LISTING OF SECURITIES
Listing means formal admission of a security into a public trading system, usually a stock exchange, often evidenced by a listing agreement between the issuer of the security and the stock exchange. It provides liquidity to the issuer of security for capital and ensures effective monitoring of conduct of issuer and of the trading of the securities in the interest of investors. The issuer wishing to have trading privileges for the securities on a stock exchange satisfies listing requirements prescribed in the relevant statues and in the listing regulations of the concerned stock exchange.
OBJECTIVES for Listing of Securities
- TRADING PLATFORM : It provides a market place for transacting in shares.
- LIQUIDITY: It establish a realistic demand-supply equilibrium.
- WELL DISPERSED INVESTOR BASE: As a result, concentration of holding is minimised.
NEED for listing
1. Enhances Corporate Image.
2. Wider base for raising funds.
3. Greater Credibility and acceptability.
4. Exit for financial Investors.
5. Regulatory opportunities and compulsions.
6. Encash Value.
DELISTING
‘Delisting’ denotes removal of the listing of the securities of a listed company from the Stock Exchange. Delisting differs from suspension or withdrawl of admission to dealing of listed securities, which is for a limited period.
Corporates are now aiming at reducing costs, which do not have any returns. Payment of listing fees to the stock exchanges today is considered by some Companies as a burden because the companies feel that neither the shares are traded on the stock exchanges nor the exchanges provide any value added service to the companies. The Company has an option to Delist any or all class of securities. There is no restriction as to class of securities. However, a Company is not allowed to delist its securities through Buy-back.
TYPES OF DELSTING
Broadly, delisting of securities may be of two types:
- Voluntary Delisting : delisting of securities of a body corporate voluntarily by a promoter or an acquirer or any other person other than the stock exchange(s), i.e., a listed Company seeks delisting of securities on its own motion.
- Compulsory Delisting : a listed Company is compelled by the Stock Exchange to delist its securities
‘Promoter’ means a promoter as defined in clause (h) of sub-regulation (1) of Regulation 2 of the Securities and Exchange Board of India (Substantial Acquisition of shares and Takeovers) Regulation, 1997 and includes a person who is desirous of getting the securities of the company delisted under Securities And Exchange Board Of India (Delisting Of Securities) Guidelines – 2003
NEED OF DELISTING
- Relinquishing control through sale.
- Regulatory Demands.
- Changing Investor Profile and funding patterns.
- Emergence of National Exchanges.
- Lack of trading volume in regional exchanges.
- Compliance and disclosure requirements.
- Administrating and cost of servicing large shareholder base.
CAUSES OF COMPULSORY DELISTING
- Non payment of listing fees.
- Non compliance with listing requirements and listing agreement.
- Non redressal of investor’s complaints despite repeated reminders.
- Unfair trading practices at the behest of the promoters/ management.
- Other malpractice such as fake, original or duplicate share certificates deliberately issued by the management.
- Whereabouts of the Company / or its Promoters / Directors not known
- Reduction in the number of public holders of securities.
CAUSES OF VOLUNTARY DELISTING
- A Listed Company finds the listing fees payable to the stock exchanges burdensome and disproportionate to the benefits accruing to the company or its stock holders.
- Regional imbalance of the holders of the securities either due to shifting of the companies registered office and / or location of manufacturing unit, or for any other reason.
- Negligible trading or total absence of trading for a considerable long period of time.
- The company has either suspended its business or is under closure or has become sick industrial company.
- Small capital base or failure to comply with the requirement of increasing the capital, not justifying listing to be continued.
- Mergers, Amalgamations, Takeovers, etc.
CONDITIONS of Voluntary Delisting
- Listing for minimum period of 3 years at any stock exchange.
- An exit opportunity has been given to the investors for the purpose of which an exit price shall be determined in accordance with the “book building process”. However, an exit opportunity need not be given in cases where securities continue to be listed in a stock exchange having nation wide trading terminals.
(Explanation: Stock exchange having nationwide trading terminals means the Stock Exchange, Mumbai, the National Stock Exchange and any other stock exchange, which may be specified by the Board.)
PROCEDURE FOR DELISTING OF SECURITIES
The following procedure is to be followed for voluntary delisting of securities from the Stock Exchanges.
1. BOARD APPROVAL
Convening a meeting of the Board of Directors of the Company after issuing a notice preferably in writing to all the directors of the Company in accordance with the provisions of Sec. 286 of the Companies Act, 1956 and to pass a resolution on the following:
(a) proposal for delisting the shares of the Company.
(b) for convening General Meeting for obtaining the consent of the members by way of a special resolution and fix up the date, time, place and agenda for convening the same. The agenda can be included in the Annual General Meeting also.
2. INTIMATION TO STOCK EXCHANGES: Immediately after the Board Meeting, a certified copy of the Board Resolution proposing the delisting of the securities from the said Stock Exchange is to be submitted to the required Stock Exchange. Similarly, two copies of the notice of the general meeting is also to be sent to the Stock Exchanges.
3. MEMBERS APPROVAL: The notice convening the General Meeting is to be sent in writing at least twenty-one clear days before the date of the meeting to the shareholders of the Comapny. Suitable Explanatory Statement as provided under Sec.173 (2) of the Companies Act, 1956 is to be attached to the Resolution.
The General Meeting is to be held on the given date and the Special Resolution referred above is passed. The Companies (Passing of resolution by postal ballot) Rules, 2001 are not applicable for delisting of securities from Stock Exchanges. Accordingly, the Special Resolution has to be passed in the conventional manner only in Extra Ordinary General Meeting or Annual General Meeting.
4. FILING OF FORMS WITH THE REGISTRAR OF COMPANIES : Within thirty days of passing the Special resolution, the Company is required to file Form No. 23 of the Companies (Central Government`s) General Rules & Forms, 1956 with the concerned Registrar of Companies, enclosing a certified copy of the resolution, explanatory statement and the notice of such meeting alongwith the payment of the requisite fee as prescribed under Schedule X to the Companies Act, 1956 either by way of cash, demand draft or treasury challan.
5. PUBLICATION OF NOTICE IN NEWS PAPERS:The Company desiring to delist the securities shall publish a notice in newspapers (one in all India English Newspaper and one in regional language newspaper of the region) with detailed explanation and justification for the proposed delisting. A copy of the notice shall be filed with the stock exchange.
6. EXIT OPPORTUNITY TO SHAREHOLDERS OF THE REGION:The holders of the securities in the region where the concerned stock exchange is located should be given an exit opportunity requiring the promoters or those who are in the control of the management of the Company to buy or to make arrangement for buying the securities of such holders.
Hence, the Company shall identify the promoter(s) or persons having control of the management of the Company who is or willing to buy the securities. An undertaking from such person(s) to buy the securities shall be submitted to the Stock Exchange.
7. PURCHASE PRICE: The price at which the shares are to be bought shall not be less than the weighted average of the traded price of the security in the preceding six months at any of the Stock Exchanges on which the securities are listed and where the highest of the volume of the securities was traded.
In case there was no trading at any of the Exchanges during the preceding six months, the price for the purpose of buying of the securities should be a fair price to be computed by the Auditors of the Company. The Company shall submit a certificate from the Auditor certifying that the price has been fixed as per SEBI Guidelines, giving the details of calculation.
8. SUBMISSION OF LIST OF SHAREHOLDERS TO STOCK EXCHANGE: The Company desiring to voluntarily delist the shares shall submit a complete list of the shareholders of the region, duly certified by the Auditor and / or Registrar and Transfer Agent and / or Managers to the offer, where the concerned Stock Exchange is located and from which the company is seeking delisting.
Where no shareholder resides in the region of the concerned stock exchange the company should furnish the certificate of its registrars and transfer agent and of Managing Director /Company Secretary /Auditors of the company or practicing company secretary to that effect.
9. RECORD DATE: The Company shall fix a Record Date to determine the shareholders of the region to whom the offer letters are to be sent and the same shall be intimated to the Stock Exchange.
10. OFFER TO BUY SHARES: The Company shall send a circular / letter of offer to each and every share holder of the regional stock exchange from which the securities are proposed to be delisted. The circular / offer letter shall contain all details viz., back ground of the persons) who is / are buying the shares, where the share certificates are to be sent, offer price, details of payment, detailed explanation and justification for the proposed de-listing etc.
11. AUDITOR/RTA’S CERTIFICATE: The Company shall obtain a certificate from the Auditors/Share Transfer Agent that the Circular/Letter of Offer has been dispatched to all the shareholders of the concerned region before the opening date of the offer and send the same along with two copies of the Circular/Letter of Offer to the Stock Exchange(s) from where the securities are proposed to be delisted.
12. MINIMUM PERIOD FOR OFFER TO BUY: The offer to buy the securities as aforesaid shall be kept open for a minimum period of 30 days similar to that of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
13. MANNER OF PAYMENT FOR SHARES BOUGHT BACK: The consideration amount shall be calculated and the entire amount shall be kept in a separate bank account (Escrow Account) before the opening of the offer. A certificate from the Auditor to this effect shall be submitted to the Stock Exchange before the opening of the offer. The promoter(s)/person(s) who is /are buying the securities can make use of the balance amount after the payment of the consideration amount to the shareholders from whom the shares have been accepted, only after all the formalities are completed, including the transfer of shares.
14. TIME LIMIT FOR PAYMENT OF SHARES BOUGHT BACK: All the formalities in connection with the offer including the payment of consideration and transfer of securities shall be completed with in 30 days from the date of the closure of the offer. The Company shall also furnish the details of the response received for the said offer viz., number of shares for which offers have been received, rejection if any, number of shares accepted etc.
15. AUDITOR’S CERTIFICATES REGARDING PAYMENT etc.: The Company shall submit a certificate from the statutory auditors of the Company certifying that the consideration amount has been paid and all transfers have been effected. Similarly, the Company shall furnish another certificate from the Statutory Auditors that the company has complied with all the requirements, SEBI guidelines and Stock Exchange procedures in connection with the purchase of the aforesaid shares.
In case the aforesaid purchase of shares results in purchase of shares in excess of the limits prescribed under the SEBI (substantial Acquisition of Shares and Take Over) Regulations, 1997 the Company shall take up the matter with the SEBI for getting necessary exemption.
16. CLEARANCE OF INVESTOR COMPLAINTS OF THE REGION: The Company seeking to delist the securities from a particular region should ensure that all the complaints of the region are attended to and such company shall furnish a certificate from the auditors of the company that there are no pending complaints from that region.
A certificate from the regional stock exchange to the effect that the company remains listed on the regional stock exchange is also required to be furnished.
Also submit the details of financial position of the company whether it is a profit making company, loss making company or closed Company in terms of production or commercial transactions or a sick company registered with BIFR. If it is a BIFR registered company, please furnish the necessary documentary evidence.
17. PAYMENT OF LISTING FEE ARREARS: The Company desiring to delist the securities from a particular stock exchange shall pay the Annual Listing fee till the date of delisting. There shall not be any arrears of listing fee payable to the stock exchange at the time of consideration of application for delisting of securities.
18. APPLICATION FOR DELISTING:A Company shall make application to the Stock Exchange for delisting of shares only on completion of the aforesaid formalities.
19. MENTION IN THE DIRECTORS’ REPORT:The Company shall disclose the fact of delisting together with a statement of reasons and justification therefor in the Directors Report of the Company and a copy of the same be sent to the Stock Exchange immediately on dispatch of the notice of the Annual General Meeting to the members of the Company.
EXIT PRICE
In case of frequently traded securities :- Floor price-Average of 26 weeks traded price and without any ceiling of maximum price.
In case of infrequently traded securities :- The offer price shall be determined by issuer and the merchant banker taking into account the following factors:
- Highest price paid by acquirer for acquisition of shares
- Price of allotment or right issue during previous 26 week
- Price of preferential allotment during the 12 months of period
- Return on net worth
- Book value of the shares
- Earning per share
PUBLIC ANNOUNCEMENT for delisting:- The public announcement shall contain inter-alia the following information:
- The floor price and how it was reached
- The dates of opening and closing of the bidding
- The name of the exchanges from which the securities are sought to be delisted.
- The names and addresses of the trading members as well as the bidding terminals and centers through which bids can be placed.
- Description of the methodology to be adopted for determination of acceptable price
- Period for which the offer shall be valid
- A full and complete disclosure of all material facts including necessity & object.
- The proposed time table from opening of the offer till the settlement of the transfers.
- Details of the escrow account and the amount deposited therein.
- Listing details and stock market data:
- high, low and average market prices of the securities of the company during the preceding three years;
- monthly high and low prices for the six months preceding the date of the public announcement; and,
- the volume of securities traded in each month during the six months preceding the date of public announcement.
11. Present capital structure and shareholding pattern.
12. The likely post-delisting capital structure.
13. The aggregate shareholding of the promoter group and of the directors of the promoters, where the promoter is a company and of persons who are in control of the company.
14. Name of compliance officer of the company.
15. It should be signed and dated by the promoter.
Before making the public announcement, the promoter shall appoint a merchant banker registered with SEBI, who is not an associate of the promoter.
On determination of the final price pursuant to the book building, the promoter or the acquirer shall within a period of two working days from such determination:
- make a public announcement in the newspapers of the final price as discovered by the book building process and whether or not the promoter or the acquirer has accepted the price; and,
- communicate to, exchange or exchanges from which delisting is sought to be made, the final price discovered and whether the promoter has accepted the price.
OFFER FAILURE
- Acquirer rejects Exit Price
- Acceptance does not result in public shareholding falling below the minimum limit
Implications:
(a) No securities shall be acquired through the offer
(b) Securities continue to be listed
(c) Public shareholding to be brought upto the minimum limit within the period of 6 months through issue of fresh shares, offer for sale and secondary market dilution.
(d) Beyond 6 months, promoter to make offer for sale to public at the price determined by Central Listing Authority
AGENCIES INVOLVED & ASSIGNMENTS CARRIED BY THEM
- Determination of Exit Price.
- Public Announcement.
- Determination of Biding Centres.
- Appointment of Trading Members.
- Determination of Final Offer Price.
- Announcement of Final Price.
- Settlement Process.
- Intimation to the Stock Exchanges regarding consideration of business item of Delisting of securities.
- Approval through Special Resolution and necessary filing at ROC.
- Preparation in regard to determination of Exit Price in consultation with Merchant Banker.
- Finalisation of Schedule of Delisting in consultation with Merchant Banker in advance.
- Preparation in relation to Book-building process, in consultation with Merchant Banker and Stock Exchange concerned.
- Opening of Escrow Account.
- Preparation of Public Announcement.
- Application to Stock Exchange concerned and liaison with such Stock Exchange.
- Determination and announcement of Final Offer Price.
- Settlement Procedure.
TYPES OF DELISTING
1. Voluntary Delisting
2. Compulsory Delisting
NEED OF DELISTING
- Relinquishing control through sale.
- Regulatory Demands.
- Changing Investor Profile and funding patterns.
- Emergence of National Exchanges.
- Lack of trading volume in regional exchanges.
- Compliance and disclosure requirements.
- Administrating and cost of servicing large shareholder base.
CAUSES OF COMPULSORY DELISTING
- Non payment of listing fees.
- Non compliance with listing requirements and listing agreement.
- Non redressal of investor’s complaints
- Unfair trading practices
- Malpractices
- Whereabouts of the Company, its Promoters, etc. not known
- Reduction in the number of public holders of securities.
CAUSES OF VOLUNTARY DELISTING
- A Listed Company finds the listing fees payable to the stock exchanges burdensome and disproportionate to the benefits accruing to the company or its stock holders.
- Regional imbalance of the holders of the securities
- Negligible trading or total absence of trading
- Suspension of business
- Sick industrial company.
- Small capital base
- Mergers, Amalgamations, Takeovers, etc.
PROCEDURE FOR DELISTING OF SECURITIES
1. BOARD APPROVAL
2. INTIMATION TO STOCK EXCHANGES
3. MEMBERS APPROVAL
4. FILING OF FORMS WITH THE REGISTRAR OF COMPANIES
5. PUBLICATION OF NOTICE IN NEWS PAPERS
6. EXIT OPPORTUNITY TO SHAREHOLDERS OF THE REGION
7. PURCHASE PRICE
8. SUBMISSION OF LIST OF SHAREHOLDERS TO STOCK EXCHANGE
9. RECORD DATE
10. OFFER TO BUY SHARES
11. AUDITOR/RTA’S CERTIFICATE
12. MINIMUM PERIOD FOR OFFER TO BUY
13. MANNER OF PAYMENT FOR SHARES BOUGHT BACK
14. TIME LIMIT FOR PAYMENT OF SHARES BOUGHT BACK
15. AUDITOR’S CERTIFICATES REGARDING PAYMENT etc.
16. CLEARANCE OF INVESTOR COMPLAINTS OF THE REGION
17. PAYMENT OF LISTING FEE ARREARS
18. APPLICATION FOR DELISTING
19. MENTION IN THE DIRECTORS’ REPORT
OBJECTIVES FOR LISTING OF SECURITIES
1. TRADING PLATFORM
2. LIQUIDITY
3. WELL DISPERSED INVESTOR BASE
NEED FOR LISTING
1. ENHANCES CORPORATE IMAGE.
2. WIDER BASE FOR RAISING FUNDS.
3. GREATER CREDIBILITY AND ACCEPTABILITY.
4. EXIT FOR FINANCIAL INVESTORS.
5. REGULATORY OPPORTUNITIES AND COMPULSIONS.
6. ENCASH VALUE.
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