Analysis of recently attempted Voluntary Delistings

The number of voluntarily delistings seen in the last 1 (one) year has surpassed the number of delistings attempted earlier in a single year. Promoters are choosing to voluntarily delist their companies from the stock exchanges for various reasons including stock market price not being reflective of true value of the company’s stock, having full control over operations (without being required to go for any public vote for critical transactions), restructuring of their group entities, greater flexibility and reducing costs related to numerous regulatory compliances.

Even the Securities and Exchange Board of India (SEBI) introduced various amendments (mostly for tightening of procedure) under the new SEBI (Delisting of Equity Shares) Regulations, 2021 (2021 Delisting Regulations). The 2021 Delisting Regulations replaced the old SEBI (Delisting of Equity Shares) Regulations, 2009 (2009 Delisting Regulations). However, the key elements of a delisting process i.e. requirement of super majority of minority shareholder being in favour of the delisting proposal and the bidding process through the reserve book build (RBB) mechanism remain the same even under the new 2021 Delisting Regulations.

Therefore, the questions uppermost in our minds pertain to knowing the total number of delisting successes vis-à-vis the recent number of delisting proposals as well as evaluating the number and causes of failed delistings. In this analysis, we have covered key elements of 16 (sixteen) delisting proposals attempted recently and sought to answer the questions that our clients generally have while considering a voluntarily delisting of their companies.

A. Successful Delistings

Out of the 16 (sixteen) delisting proposals that we have analysed in this article, only 6 (six) succeeded in crossing all the hurdles. We have provided below a snapshot of the key elements of these 6 (six) successful delisting proposals:

Successful Delistings - 1

B. Unsuccessful Delistings

As the readers are aware, voluntary delisting is not a guaranteed process and can fail at various stages. Generally, we see more delisting proposals fail than succeed. A delisting proposal can primarily fail at:

  1. Board approval stage: The proposal to delist Crimson Metal Engineering Company Limited failed because the board of the company did not approve the delisting proposal. 
  1. Shareholder approval stage: The proposals to delist the following companies failed because the public shareholders did not approve the voluntary delisting:


Unsuccessful Delistings - 2

  1. RBB stage:

a. The proposals to delist the following companies failed because of insufficient tender by the public shareholders in the RBB:

RBB Stage 3

b. The proposals to delist the following company failed because of the price discovered through RBB was not acceptable to the acquirers:

RBB Stage 3 B

Given the above background, we have answered below the key questions most promoters have when they are considering delisting of their entities:

C. Key questions and takeaways

1. Whether high initial promoter shareholding in the company necessarily results in a successful delisting?

No. A high initial promoter shareholding can only increase the chances of a successful delisting. As can be seen from the data above, 4 (four) out of 6 (six) successful delistings had initial promoter shareholding exceeding 70% (seventy percent) namely,  Amrit Corp. Limited, East India Securities Limited, Genesis Exports Limited and Solid Containers Limited.  However, this does not guarantee a successful delisting since there may still be insufficient tender by public shareholders to reach the 90% (ninety per cent) threshold (e.g. Jindal Photo Limited and Xchanging Solutions Limited).

2. Whether offering a substantial premium over the current market price necessarily result in a successful delisting?

No. for example, in Elcid Investments Limited, the market price of its shares on the date of the initial public announcement (March 19, 2022) was around ₹ 15 (Rupees Fifteen) while the floor price per share for the delisting proposal was computed to be ₹1,61,023 (Rupees One Lakh Sixty One Thousand Twenty Three) per equity share. However, the public shareholders still rejected the delisting proposal.

3. Whether having a high institutional shareholding necessarily results in a successful delisting?

No. Institutional shareholders holding large blocks of shares facilitate shareholder outreach but it does not guarantee success. Hexa Tradex Limited is an example of a company with high institutional shareholding which has seen a successful RBB outcome. In contrast, in Allcargo Logistics Limited, the institutional shareholders voted against the delisting proposal. Therefore, the answer depends on the commercial wisdom of the institutional shareholders and promoters. If the institutional shareholders feel that the promoters are attempting to take advantage of the subdued market price of the target entity, then the delisting proposal would not go through for obvious reasons.

4. Whether a company can be successfully delisted if it has high promoter shareholding as well as high retail shareholding?

Yes. In the following cases, the retail public shareholding exceeded 20% (twenty per cent) but the Companies were still successfully delisted:

Public Shareholding Bifurcation - q3

5. Whether a large/diverse public shareholding affects successful delisting?

Yes. A high number of public shareholders can affect shareholder outreach. Mobilising a large and diverse group of public shareholders to tender their shares in the RBB process can be a challenge, but not impossible. A few examples are analysed below which can aid understanding this issue:

Reasons for failure - Delisting

However, low number of public shareholders does not necessarily lead to successful delisting. E.g. Elcid Investments Limited has only 276 (two hundred and seventy-six) public shareholders but the public shareholders still rejected the delisting proposal.

6. If the shareholders approve the delisting proposal with requisite majority, does it mean they have accepted the floor price or indicative price suggested by the promoter or have agreed to tender their shares?

No. The RBB is a bidding process where shareholders can tender their shares at any price on or above the floor price. Shareholder approval does not mean that the shareholders have agreed to tender their shares at the floor price or indicative price or tender at all. Generally, successful delistings are completed at a premium over the floor price or indicative price. Examples of delisting proposals successfully completed at a premium above floor price or indicative price are below:

Floor price of delisting - q5

The shareholders may also tender their shares at such a high price that it may not be acceptable to the acquirers. For example, the indicative price offered by the acquirers in Universus Photo Imagings Limited was ₹ 568 (Rupees Five Hundred Sixty Eight) per share while the price discovered through the RBB process was ₹ 1,500 (Rupees One Thousand Five Hundred) per share which was not accepted by the acquirers.

Even after shareholder approval, sufficient shareholders may not tender their shares, e.g. Jindal Photo Limited, Shyam Telecom Limited and Xchanging Solutions Limited.

The promoters of Allcargo Logistics Limited had initially proposed delisting of the company under the 2009 Delisting Regulations but had to restart the process under the 2021 Delisting Regulations due to the change in law. Even though the shareholders of Allcargo Logistics Limited approved the delisting proposal first time (in October, 2020), they rejected the delisting proposal when the company approached the shareholders again (in September, 2021).

7. Have the stock exchanges instructed companies to withdraw delisting proposed under 2009 Delisting Regulations and start afresh under the 2021 Delisting Regulations?

Yes. Several delisting proposals which were initiated under the 2009 Delisting Regulation had to be started afresh under the 2021 Delisting Regulations, e.g. Allcargo Logistics Limited, Remi Securities Limited, Terai Tea Company Limited and Hindustan Appliances Limited (ongoing).

[1] As on the date of this blog article, the RBB price has been accepted by the acquirers and the price has been paid to those public shareholders who have validly tendered their shares. Final approval for delisting from the stock exchanges is pending.

[2] As on the date of this blog article, the RBB price has been accepted by the acquirers and the price has been paid to those public shareholders who have validly tendered their shares. Final approval for delisting from the stock exchanges is pending.

[3] Id.