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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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