In a major development yesterday, India’s leading stock exchange BSE announced that it will ‘compulsorily’ delist 200 firms this week and bar their promoters from the markets for 10 years as trading in these shares have remained suspended for over a decade. There will be a sigh of relief for those investors who own any of these shares as there was no trading in these stocks in last ten years. BSE said in a separate notification that promoters of these delisted companies will be required to purchase the shares from the public shareholders as per the fair value determined by the independent valuer appointed by the exchange. Here we take a look at four key aspects of the development.
All these companies will be delisted from 23 August. The move also comes at a time when authorities are clamping down on shell companies — listed as well as unlisted — for allegedly being used as conduits for illicit fund flows. According to the BSE, stocks of 117 companies that have remained suspended for more than 10 years would be “delisted from the platforms of the exchange” with effect from 23 August 2017. Besides, the scrip of 28 companies that have remained suspended for more than 10 years and are “under liquidation” would also be delisted from August 23, 2017. In addition, 55 companies would be delisted from the platform of the exchange, with effect from 23 August 2017. Way back in this month only, SEBI directed exchanges to act against 331 suspected shell companies, while the government has already deregistered more than 1.75 lakh firms that have not been carrying out business activities for long.
Consequences of compulsory delisting
Majority of these companies have remained suspended for more than 10 years and are “under liquidation”. These firms will be “delisted from the platform of the exchange, with effect from 23 August 2017 pursuant to the order of the delisting committee of the exchange in terms of Sebi (Delisting of Equity Shares) Regulations”, BSE said in three separate circulars. Shares of Eupharma Laboratories, Athena Financial Services, Magnus Rubber Industries, Rajasthan Polyesters, Transpower Engineering, Dupont Sportswear, Dynavox Industries and GDR Media are among the major firms to be delisted with effect from 23 August 2017.
What will happen after delisting?
Under the delisting regulations, the delisted company, its whole-time directors, promoters and group firm would be debarred from accessing the securities market for 10 years from the date of compulsory delisting. Promoters of these delisted companies will be required to purchase the shares from the public shareholders as per the fair value determined by the independent valuer appointed by the BSE. Further, these companies will be moved to the dissemination board of the exchange for 5 years as advised by Securities and Exchange Board of India (Sebi).
SEBI’s Shell order
Earlier this month, India’s capital markets regulator SEBI shocked investors with its order to suspend trading in 331 suspected shell companies’ shares, putting them on a strict watch under its Graded Surveillance Measure (GSM) framework. The regulator asked the stock exchanges to place all the 331 companies in the stage VI (six) of Graded Surveillance Measure, restricting the trade in these securities to once in a month with additional deposit. The regulator’s directive came after the corporate affairs ministry shared a list of 331 listed companies that are suspected to be shell entities. Out of 331 firms identified by Sebi for action, 162 were actively traded on BSE; 48 were traded on the NSE. The rest have already been suspended by the bourses on account of irregularities.