delisting of securities & financial restructuring

8/2/2019 Delisting of Securities & Financial Restructuring

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DELISTING OFDELISTING OF

SECURITIESSECURITIES


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DELISTING OF SECURITIESDELISTING OF SECURITIES

Delisting refers to the practice of moving in the

stock of a company from a stock exchange so

that investors can no longer trade shares of the

stock on that exchange.

Delisting occur when companies decide to delist

their stock from stock exchanges in a move to

privatize or simply move to the over-the-counter(OTC) markets.


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This typically occurs when a company goes out

of business, declares bankruptcy, no longersatisfies the listing rules of stock exchange, or

has become a private company after a merger

or acquisition, or wants to reduce regulatory

reporting complexities and overhead, or if thestock volumes on the exchange from which it

wishes to delist are not significant.


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Delisting does not necessarily mean a change

in company's core strategy.

Delisting of shares has become a critical issue

in the financial sector that causes uneasiness

for the investors.

Over the past three years, a minimum of 50

companies have delisted from the stock

exchange, due to this reason the retail investorsget struck with their investments.


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Main reasons for delisting is violation from the

financial specifications set out by the stockexchange.

SEBI has made strict delisting norms taking

investors interests are safely guarded.

However, in some cases of delisted companies

residual investors reap huge premiums on exit

prices.


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According to SEBI (delisting of securities)guidelines 2003, the promoters of the companyshould purchase back the shares from itsinvestors, within a time frame of a year frompassing the resolution of the delisting.

The resolution that gets passed for the delistingby the company is passed to the marketregulator (SEBI).

SEBI appoints an independent body who wouldfix the fair value of the shares that are to bedelisted.


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Normally the exit price is calculated by the pricethat is based on the average of 26 week highand low prices.

Post the delisting offer closing, there is a periodof another six months, which allows the

shareholders to get the money back of theshares they hold.

The rights that shareholders have while as a

share holder of a company would be the samewhen its delisted too, to receive bonus,dividends, annual reports and annualmeetings.


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Delisting process occurs in two ways:Delisting process occurs in two ways:--

Voluntary Delisting

Forced Delisting

companies are notified 30 days before being

delisted and shares can plunge as a result.


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Reasons of delisting & Advantages toReasons of delisting & Advantages to

shareholders:shareholders:--

Capital Savings - The costs of being a publicly

traded company are substantial and are

occasionally difficult to justify with a low marketcapitalization. As a result, deregistering can

save a company millions and reward

shareholders with a higher net income and

earnings per share (EPS).


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Strategic Move - Shares of the company may be

trading below intrinsic value, compelling the

company to acquire its own shares as a strategic

move. This typically results in shareholders being

rewarded with substantial returns over the short

term.

Regulatory Concerns - Stock exchanges have

minimum requirements to remain listed. If a

company does not meet those requirements, it may

be forced to delist itself. Causes for delisting mayinclude failure to file timely financial reports, lower-

than-required stock price, or insufficient market

capitalization.


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FINANCIALFINANCIAL

RESTRUCTURINGRESTRUCTURING


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Financial RestructuringFinancial RestructuringReferred to as financial reorganization of acompany by affecting change in the capitalstructure for achieving a balanced operative

results.

FR is resorted to bring balance in debt & equity,short-term & long-term financing, to achieve

reduction in finance charges, to reduce cost ofcapital, to increase EPS, to improve marketvalue of share, to reduce the control offinanciers on the mgmt. of the company etc.


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Improves the financial strength of the company.

Adjustment of gearing i.e. debt-equity ratio to

achieve maximization of wealth of shareholders.

FR involves restructuring of assets & liabilities ofthe company, in the line with their cash flow

needs, in order to promotes efficiency, support

growth and maximize value to shareholders,

creditors and other stakeholders.


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FR will bring in the change in capital structure,

which depends on the following factors:

a) Mgmt. control

b) Cost of different sources of capital

c) Flotation costd) Cost of servicing the equity & debt

e) Risk & return profile of the industry

f) Financial risks involved in debt financing

g) Flexibility in capital structure

h) Legal formalities etc.


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Poor capital structure may be due to:-a) Project cost overrun

b) Technological obsolescencec) Accumulated loss and unrepresented value of

assets in b/sd) Insufficient WCe) Financing of FA with short-term fundsf) Financing of CA with long-term fundsg) Investment in non-core business & assets which

does not contribute to profitabilityh) Poor CRi) Inadequate ROCE.FR scheme should able to minimize the COC,

maximize the ROE, increase EPS and marketprice of equity shares.


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delisting of securities & financial restructuring

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