A few days back Billionaire Gautam Adani led Adani Power announced its intention to delist the company’s shares from Indian stock exchanges with its promoter firm Adani Properties, proposing to buy out the company’s publicly listed shares.
The promoter group collectively holds 74.97% of the paid-up equity share capital in the company, whereas public shareholders own 25.03% currently. The company has appointed a merchant banker named Vivro Financial Services Pvt Ltd to assess the proposal to delist its equity shares from NSE and BSE.
Headquartered at Ahmedabad in Gujarat, Adani Power Limited is the power business subsidiary of Indian conglomerate Adani Group. The company is India's largest private thermal power producer, with a capacity of 12,410 megawatts across six states in India.
This move by the Adani group to delist Adani Power shares comes close on the heels of delisting plans of Vedanta Ltd. announced by its Founder & Chairman, Anil Agarwal.
Why Adani Group is planning to delist Adani Power shares?
As per an official statement issued by Adani Power, the proposed delisting of Adani Power shares is expected to enhance the company's operational, financial and strategic flexibility.
"The objective of the delisting proposal is to enable the promoter group to obtain full ownership of the company and provide enhanced operational flexibility," stated a disclosure issued by Adani Power.
This has left many unresolved queries in the minds of investors, with many not sure of how the delisting of shares will affect their investment.
Through this article, let's take a look at the process of delisting of shares and its impact on the shareholders from a layman's perspective.
What is meant by the delisting of shares?
Delisting of shares refers to the removal of a company’s shares from a stock exchange platform, as a result of which the shares can no longer be traded on the exchange. Delisting of shares can be of two types i.e. voluntary delisting or involuntary delisting.
What is involuntary delisting of shares?
In the case of involuntary delisting of shares, the delisted company, its full-time directors, promoters and group firms are barred from accessing the securities market for ten years from the date of compulsory delisting. Involuntary delisting of shares can happen due to several reasons, such as if the company becomes bankrupt or fails to meet the compliance standards set by the exchange.
In the case of involuntary delisting of shares, the promoters of the delisted companies are required to purchase the shares from public shareholders based on a fair value determined by the independent valuer. In this scenario, investors don’t have any other option.
Kingfisher Airlines, Brandhouse Retails, Elder Pharmaceuticals and Varun Industries are some well-known examples of the companies whose shares were involuntarily delisted in the last few years.
What is the voluntary delisting of shares?
Voluntary delisting of shares happens when the company decides that it would like to purchase all of its shares or merge with another company. In case of voluntarily delisting, the company typically offers shareholders a premium over the current share price in the market.
UTV Software is an example of a company whose stocks got voluntarily delisted after Disney acquired the company.
As per the guidelines prescribed by SEBI, in case of a voluntary delisting of shares, the company has to follow the below process:
- Company will call for a board meeting after giving written notice to all board members. The proposal for delisting shares is floated, and a resolution to the effect is passed.
- Obtain a prior approval of shareholders by a special resolution passed at its general meeting.
- Make a public announcement through newspapers with detailed explanation and justification for the proposed delisting.
- Submit an application to the relevant exchange in the form specified by the exchange, along with a copy of the special resolution for delisting of shares.
- Promoters will offer an exit opportunity to the shareholders at a floor price, which shall be calculated on the basis of the average of 26 weeks traded price quoted on the stock exchange.
There are several more steps involved until the final delisting is completed. From a shareholder’s perspective, a company which is delisting its shares voluntarily will keep its shareholders informed at different stages.
In case of delisting of Adani Power shares, given the low valuations due to market correction in March 2020, it can be considered as an attempt by the promoters to increase their stake at attractive prices. In the last 12 months, share prices of Adani Power fell from a high of Rs. 73.75 to the current level of Rs. 37.80, making delisting an affordable option for promoters. Retail shareholders who entered the stock at high prices, however, would be the biggest losers.
Events like voluntary delisting may be beyond the control of shareholders even if some shareholders of the company may not be in favour of it.
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