When the shares of a
listed company are removed from the stock exchange permanently for buying
and selling purposes, it is known as delisting. There are two reasons why a
company’s share gets delisted i.e. voluntary and involuntary. It is involuntary
when a company ceases operations, declares bankruptcy, takeovers or merges,
failure to maintain the requirements set by the exchange. While it’s voluntary
when a company just wishes to go private again.
The price of the
delisting of a stock is arrived at by a method known as “Reverse Book-Building”.
This task is carried out by the merchant bankers appointed by the company that
is planning to delist the stocks. Reverse book building is additionally a price
discovery method, during which bids are taken from current minority
shareholders and therefore the final price, which normally exceeds the market
value is fixed based on the nature of the bids.
The COVID-19 pandemic
and the resulting economic slump that has sent stock prices plummeting and has
brought on a wave of voluntary delisting proposals as promoters attempt to
repurchase shares cheap. In the last three months, majority owners of Vedanta
Ltd, Adani Power, and Hexaware Technologies have also proposed buying out all
publicly-traded shares of their companies, while delisting rumors have swirled
around Diageo’s United Spirits, the Indian arm of US-based IT firm Oracle.
Vedanta Ltd. recently stated they will be delisting their stock from the Indian exchanges. It has already got approval from the shareholders and the reverse book building filings are in the works. This is not new for them, back in October 2018 they delisted themselves from London Stock Exchange (LSE). The buy-out of the London listing was intended to simplify the company's structure and therefore the liquidity from the Indian markets meant that the necessity for a separate London listing was no longer critical. The reason for delisting from the Indian exchanges are plenty. Due to coronavirus, the share price of Vedanta which used to be in the mid ₹300 a year back is trading at around ₹80-₹120 currently. And this can be the best time for Vedanta to do the corporate simplification they always wanted to do. Delisting is only considered successful if the shareholding of the acquirer and the shares offered by the public shareholders together make up 90% of the company’s entire share capital. This delisting will provide Vedanta group with enhanced operational & financial flexibility in a capital intensive business & is expected to support an accelerated debt reduction program in the medium term.
Vedanta Ltd has pledged
part of its shareholding in subsidiary Hindustan Zinc Ltd (HZL) to help fund
its proposal to delist from the stock exchanges. An exchange filing on 24th
August showed that Vedanta, the majority owner of the company with 64.92%
stake has pledged 14.82% of its stake (626 million shares) and created a
non-disposal undertaking on the remaining 50.1% stake (2.1 billion shares) in
favor of SBICap Trustee Co. Ltd.
Vedanta Resources has a
$1.9 billion debt repayment coming up in FY21 along with regular interest
payment and therefore, the group's strategy to meet these obligations and fund
the delisting will be closely watched by market participants.
Thank you.
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