You may not be surprised by the fact that 786 companies have got listed in the Bombay Stock Exchange in the last ten years. But do you know that in the same period, 2,800 companies have disappeared from the bourses?
You can neither buy nor sell shares of any of these. Stocks that were investor favourites in the late 1990s — DSQ Software and Pentafour Products — are no longer traded because trading has been suspended by the exchanges. Pyramid Saimira Theatre — a company that saw its initial public offer in 2006 getting oversubscribed 15 times— too figures in that list.
If you can't find any of your yesteryear favourites on the bourses today, there are two reasons for it.
How they vanished?
One, the stock exchanges have suspended trading in it. Two, the company has been delisted, either voluntarily after offering an exit to investors, or compulsorily, again by the stock exchanges.
Of the 1,600-odd companies that de-listed from the Bombay Stock Exchange, 53 per cent was because of compulsory delisting. Femnor Minerals, Lloyd Cements, Western Paques and CRB Capital Markets are some of the well known names of the early 1990s have since been delisted.
SEBI specifies a set of reasons why a stock may be compulsorily delisted: Loss-making companies with negative net-worth, securities suspended from trading for more than six months, infrequent trading in the preceding three years, conviction of company/promoters/directors for violation of the SEBI Act, addresses of company/promoter/directors not known, and shareholding below minimum level according to listing agreement.
Much of the compulsory delisting happened in 2004, when the BSE drew up a list of companies that were already suspended for more than three years and chose to delist them.
The number of suspended companies in the list was 1,200. Trading suspension orders from exchanges generally follow non-compliance with listing agreements and non-submission of the corporate governance report. While DSQ Software, Pentafour Products and Pyramid Saimira Theatre were suspended due to non-compliance with provisions of the listing agreement, Pentagon Global Solutions was suspended for non payment of listing fees.
In the case of compulsory delisting, promoters are bound to purchase the outstanding securities from the holders if they wish to sell the stock at a fair price determined in accordance with SEBI regulations.
What is the recourse?
Before a company gets compulsorily delisted, the exchange sends a show-cause notice to the company. The company can defend its case. If the company manages to revoke suspension, investors will have an exit opportunity as trading resumes. If not, they have to wait until they receive the delisting order from the exchange to exit the stock, when the promoter has to make an offer to buy it.