Mumbai, 17th August 2023: Delisting, the process of removing the trading and listing of a security from a stock exchange, is a significant event for shareholders. Regulated by the Securities and Exchange Board of India (SEBI), the delisting of securities for Indian listed companies follows a structured procedure outlined in the SEBI (Delisting of Equity Shares) Regulations, 2021.
Amidst this process, there are key considerations that public shareholders need to bear in mind. Here are 10 essential points that shareholders should remember during a delisting process:
- Participation in Reverse Book Building (RBB) Process: All eligible public shareholders holding equity shares in physical or demat form can participate in the RBB process. Following the issuance of the letter of offer, shareholders receive bidding and tendering steps along with a timeline for participation.
- Bidding Period: After the Acquirer issues a detailed public announcement and a letter of offer, shareholders have a specific bidding period of 5 working days to tender their shares at their preferred price.
- Shareholders’ Approval: Shareholders’ approval is sought through a vote from public shareholders. For a successful delisting, the number of votes cast in favor by public shareholders must be twice the number of votes cast against, demonstrating significant support for the delisting proposal.
- Capital Gains Tax: The sale of equity shares in an Indian company attracts capital gains tax. The tax rates depend on the holding period and residency status of the shareholder. STT is collected and deducted from consideration payable to shareholders in delisting offers on domestic stock exchanges.
- Short-Term and Long-Term Capital Gains Tax: Depending on the holding period, gains from selling listed equity shares are treated as short-term or long-term capital gains and taxed accordingly. Taxability of capital gains for non-residents is evaluated based on tax laws and treaties.
- Remaining Shareholders: In case of successful delisting, remaining shareholders holding unlisted shares might face a higher rate of tax.
- Successful Delisting: A delisting offer is considered successful if equity shares accepted through the offer take the Acquirer’s shareholding to at least 90% of the paid-up equity share capital of the Company in line with the Delisting Regulations.
- Floor Price and RBB Process: The floor price announced initially serves as the minimum price offered by the acquirer. The actual price is determined through the RBB process, with greater public participation influencing the final delisting price.
- Premium for Successful Delisting: Acquirers who successfully delist companies have paid a premium ranging from around 10% to over 200% in some cases.
- Post-Delisting Option: After successful delisting, remaining public shareholders who haven’t participated in the RBB process have the right to tender their equity shares for at least a year. These shares are treated as unlisted shares for tax calculation.
Navigating the delisting process requires shareholders to be informed and proactive. Staying knowledgeable about the regulations and implications helps shareholders make well-informed decisions that align with their financial interests.
