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Delisting demystified
November, 16th 2006

Sulzer India wants to delist from stock exchanges. And only days ago, Blue Dart's delisting effort ran aground after DHL decided not to buy shares from the former's shareholders because the discovered price exceeded expectations.

"Delisting denotes removal of the listing of the securities of a listed company from the stock exchange," explains Delisting of Securities, a recent publication of the Institute of Company Secretaries of India ( Voluntary delisting happens when a listed company seeks on its own volition the delisting of securities. The compulsory variety is when the stock exchange delists the company.

A 1979 circular from the Finance Ministry had advised stock exchanges to permit delisting if: the listed company incurred losses during the preceding three years and its net worth was reduced to less than the paid-up capital; the shares of the company remained infrequently traded during the preceding three years; and the shares remained listed on the regional stock exchange.

Six years later, there was another circular on the subject. It laid emphasis on capital adequacy and liquidity, by stating that a company may be delisted if the number of public shareholders fell below five for every Rs 1 lakh capital offered, or if the public shareholding fell below 50 per cent of the public offer.

The book traces how, in 1997, the Chandratre Committee, appointed by SEBI (Securities and Exchange Board of India), noted that the two circulars were not addressing the delisting issue. Based on the Committee's recommendations, a circular was issued in 1998. It spoke of collection of listing fees for three years upfront at the time of initial listing, keeping the amount in an escrow account with the stock exchanges, and uniformity in the listing norms across exchanges.

Five years later, SEBI brought forth guidelines for the purpose, based on the recommendations of the Pradip Kar Committee, which had been constituted owing to anxiety among investors.

ICSI adds value to the discussion of drab procedures by including its comments on good corporate practice. Such as, that public announcement of final price be made in the same newspapers in which public announcement had earlier been made for delisting of securities. A chapter is devoted to an FAQ on delisting. One of the questions is on `earlier' approval of shareholders for delisting. "Delisting Guidelines, 2003 do not specify any period of validity of shareholders' resolution. However, as a good corporate practice, delisting should be completed within a period of one year of passing special resolution." Another point on which the guidelines is silent is continuous listing. To help, the Institute opines that if securities of the company were listed for three years (with or without suspension during those years), it could voluntarily delist.

The September 2006 book may need revision soon, because the Finance Ministry has recently released `Draft delisting rules under the Securities Contracts (Regulation) Act, 1956'. It insists that the promoters or the directors of the company commit "to purchase the outstanding securities of the minority and non-promoter holders".

A thorn in the delisting process is usually the price. Failure to reach an agreement on this can mean total blocking of the exercise.

Professional read.

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