Ezz Steel decided to implement the voluntary delisting from the listing tables on the Egyptian Stock Exchange, and to purchase the shares of objectors and shareholders. Ezz Steel commissioned BDO Keys Financial Consulting to prepare a fair value study of the share price.
Many people do not know the reasons for some companies’ decision to implement voluntary delisting from the stock exchange’s listing lists, and how this is done. Will the company incur losses as a result of this decision, or are there gains?
Companies need to meet certain requirements for their shares to be traded – or listed – on stock exchanges and if the company fails to meet these requirements, the stock can be delisted from the stock exchange.
In some cases, companies choose to delist voluntarily and this may happen for various reasons, such as restructuring, financial improvement, or a strategic shift in business objectives. By going private, companies can reduce the regulatory burden and costs associated with public trading.
Banker publishes what investors should know about delisting shares:
What is delisting of shares?
The meaning of delisting occurs when a stock exchange removes a company’s shares, making them untradeable and this can happen voluntarily or involuntarily, depending on the circumstances.
Why do companies delist their shares?
Companies may choose to delist their shares for various reasons, such as mergers and acquisitions, non-compliance with listing requirements, financial distress, and strategic reasons and shareholders often see this as a last resort, given its significant implications.
Mergers and Acquisitions: A common reason for delisting a stock is a merger or acquisition of a company in which case, the stock exchange may delist the acquired company’s shares, and shareholders may receive shares or cash in exchange for their shares.
Failure to comply with listing requirements: Companies that fail to comply with listing requirements may face delisting of their shares. Listing requirements vary by stock exchange, but typically include financial reporting, a minimum share price, and a minimum market capitalization.
Financial distress: Companies in financial distress may choose to delist their shares to avoid scrutiny by investors and regulators. Delisting can also provide companies with more flexibility in restructuring or refinancing their debt.
Strategic reasons: Companies may choose to delist their shares for strategic reasons, such as going private or focusing on long-term goals without the pressure of meeting short-term performance expectations.
Types of delisting
There are two types: voluntary and involuntary
Voluntary delisting: Voluntary delisting occurs when a company decides to remove its shares from the stock exchange. Companies may choose to delist their shares for various reasons, such as restructuring their business, cutting costs, or going private.
Involuntary delisting of shares: The stock exchange forces the company to delist its shares in cases of involuntary delisting. This can happen if the company fails to meet the listing requirements or violates the rules of the stock exchange.
How does the delisting process work?
Delisting Notice: When a company decides to delist its shares, it must notify the stock exchange and shareholders. The notice usually includes the reason for delisting, the date, and the process of selling or transferring the shares.
Stopping and Suspension of Trading: Once notice is given, the Stock Exchange may halt trading of a company’s shares to allow shareholders to make informed decisions about their investments and the Stock Exchange may suspend trading if the company fails to comply with listing requirements.
Approval for delisting: Must be approved by the stock exchange and other regulatory bodies and the approval process usually includes a review of the company’s compliance with listing requirements and disclosure of relevant information to shareholders.
Implementation of delisting: Once the delisting of securities is approved, the company’s shares will be removed from the stock exchange. This means that investors can no longer buy or sell shares through the stock exchange.
What happens when shares are delisted?
In the case of voluntary delisting
In the event of a voluntary delisting of securities, the buyer purchases shares from shareholders through reverse book building and shareholders receive a formal letter and bidding form, with the option to reject the buyer’s offer.
A successful delisting requires the buyer to repurchase the necessary shares within a specified period of time. Failure results in a sale in the over-the-counter market, a time-consuming process due to low liquidity. Shareholders benefit from selling the delisted shares to promoters during the buyback period, but prices may decline after its closure.
In the event of involuntary delisting
In an involuntary delisting, an independent valuer determines the cost of the repurchase and unlike a voluntary delisting, ownership remains unaffected, but the delisted shares may lose value and delisting from most stock exchanges is not consequential.
