With bulls scaling new peaks, delisting offers are at their lowest level in at least 14 years.
Delisting, which means permanent removal of securities of a listed firm from a bourse, gives investors an opportunity to exit shares trading at low valuations.
According to data, the calendar year 2017 saw just four delisting offers worth Rs 19.99 crore compared to seven offers worth Rs 373 crore in 2016. These numbers seem minuscule as compared to the last few years when thousands of crores worth delisting offers flooded D-Street.
With Sensex trading at around 34000 amid lofty valuations, clearly, promoters don’t want to buy out public stake by paying minority shareholders a significant premium.
A delisting is a reverse of an initial public offering (IPO). Delistings gain popularity among the promoters when the investors are willing to invest at high valuations.
Delistings become popular with promoters when the investors are willing to sell at low valuations. With stocks trading at multi-year highs in many cases, potential delisting offer prices at present will be 70-100% of the stock prices a year ago.
A company can voluntarily ask to be delisted to become privately traded. Otherwise, a particular stock may be removed from a bourse because the company is not in compliance with the exchange listing requirements.
The last time a high number of delisting offers were made and drew significant investor interest was in 2015 when Sensex fell 5%. There were as many as 10 delisting issues worth Rs 5,748.56 crore, with companies accepting shares tendered worth Rs 3,953.51 crore.
Similarly, in 2011, when the Sensex fell nearly 25% for the full year, there was a flurry of delisting offers worth more than Rs 3,000 crore. In 2008, when markets halved, 21 delisting offers were announced.
“Typically, bull markets are the time for IPOs and the bear markets are the time for delistings. In the bear markets, the number of delisting offers is high and the percentage acquired (as a percentage of the offer) is also high. During bull markets, the number of delistings is lower and the acquired percentage is quite low, points out Vikas V Gupta, CEO and chief investment strategist, OmniScience Capital.
The current overall equity valuations are above average compared to history. This may be a reason why delisting offers have virtually dried up.
Harsha Upadhyaya, chief investment officer – equity, Kotak Mutual Fund, said, “Delisting offers tend to be dependent on prevailing valuations. Voluntary delisting is possible only if healthy premium over and above market price is paid to shareholders to part their stake in the company. The strong equity market has resulted in higher valuations for companies across the board and has made delisting quite unattractive for companies in recent times.”
Over the years, hundreds of companies like Fulford India, Panasonic Appliances, Fresenius Kabi, Essar Oil have been delisted from the stock exchanges. In the last 14 years, over 200 delisting offers worth Rs 27,800 crore were announced, of which shares worth Rs 16,200 crore were acquired.