Little hope for investors in stocks delisted by exchanges

Until now, not one delisted stock has been able to return any value to investors

When a stock exchange delists companies, it is not exactly good news for investors holding shares of these firms because there is little hope that they will get some value for their holdings. 
 
Recently, the National Stock Exchange of India, or NSE, delisted 19 companies, including Deccan Chronicle Holdings, Koutons Retail India and Ankur Drugs and Pharma. While there are regulations in place to help the shareholders of these companies, there’s little hope that investors may benefit.
 
“Most of these companies had corporate governance issues. Some of them were heavily in debt. Only in very few cases, there’s hope for investors to get some money back. But that will be through a long process,” says Umesh Mehta, head of research, Samco Securities.
 
Experts say when an exchange delists a company, it is usually because it has violated the listing agreement. The exchange has to finally take the step after the companies don’t comply with the norms despite repeated follow-ups. “The move is initiated to protect new investors from getting trapped in these companies and help existing investors recover whatever money they can,” says Sanjiv Bhasin, executive vice-president–market and corporate affairs, IIFL.
 

Whether investors would be able to get any money on their investments varies from company to company. According to the norms, when an exchange delists a company, it has to appoint an independent valuer to come up with a fair value. Based on the valuer’s report, the promoter has to acquire shares from investors mandatorily. Only if the fair market value of the company is positive, there’s any hope for investors to get any value for their stock holding. “Until now, no company has been able to return any value to the investors,” says J N Gupta, founder of proxy firm Stakeholders Empowerment Services and former executive director of the Securities and Exchange Board of India (Sebi).
 
Other say if these investments turn out to be duds, don’t discard them immediately. If the company went out of business for problems other than corporate governance (excessive debt for example), there’s a possibility of someone acquiring the business or promoters reviving it. Wait at least until the exchange completes the process of delisting. 
 
If you are a shareholder in any of these companies, you will receive a communication on the process the stock exchange has adopted. To know the progress, you have to keep a tab on the announcements exchanges make.
 
To ensure that the promoters don’t take investors for a ride, the rules also bar them and whole-time directors from becoming directors of any listed company until they comply with the delisting norms. Sebi can also act in investors’ interest and take appropriate action against the promoters.
 
Last year, the government empowered the stock exchanges to delist the shares of companies if they don’t comply with the listing norms and whose trading has remained suspended for more than six months. Rules were changed as a large number of companies were suspended from trading for a period of more than seven years. This includes 1,021 companies on the BSE and 132 on the NSE.
 
An exchange delisting shares is different than a company opting for this route voluntarily. The norms are different in voluntary delisting, where investors usually stand to gain.