Direct Listing & Delisting
A Direct Public Offer raises capital directly without the assistance of an underwriting or a broker-dealer firm. Such Direct public offerings generally come handy to small & medium sized companies and nonprofit organisation who want to raise capital directly within their own community rather than going to financial institutions like banks and venture capitalists. It’s like creating your own vehicle from scratch and these Direct Public Offerings match the spirit of Crowdfunding, however, they do undergo some degree of regulatory scrutiny and do register at the state level. Some DPOs are therefore conducted on crowdfunding platforms as well.
Such companies neither become a publicly-traded company nor does it typically become subject to a security board’s reporting requirements. However, the company may subsequently move to register its stock on a public market or over the counter.
DPOs may have a broker to manage it but their role merely is to assure compliance with all applicable securities laws and assists with organizing these offering. Following compliance, the company can sell its shares directly to anyone, even non-accredited investors like customers, employees, suppliers, family, friends etc.
Who can go for Direct listing
Any company or nonprofit organization can conduct a direct public offering. There are no sales, profit, asset or other traditional paperwork requirements or qualifications.
What are the must-haves for a direct public offer:
Internally generated financial statements (most of the time unaudited)
- A disclosure statement called an offering memorandum or prospectus that provides complete information of potential investors
- Any and all state regulatory approval.
- Fee involved are • Advisor fees • Accounting fees for audits • Legal fees
Advantages of a DPO
- A public listing adds value and prestige, increases attractiveness for employees
- It offers the ability use shares to leverage acquisitions, provide an exit strategy to the original founders and investors
- There are fewer regulatory restrictions compared to a traditional IPO
- The issuing company has much more control over the DPO
- DPOs are not subject to market conditions and a brokerage firm does not need to be hired
- Shares can be sold in public using a variety of methods and marketed via internet and direct adds
- Such offerings that don’t require registration can harness funds more quickly and cheaply
- Price discovery of shares and a launch pad for further raising capital
- Increased visibility
- Access to a vast network of BSE trading members
- Broader access to investment capital
- Raise capital from the company’s own community that includes small non-wealthy investors
- Absolutely no need to purchase or use an expensive/potentially risky shell company. This helps avoid unknown risks inherited from such reverse mergers
- DPOs are much more affordable than an IPO
- It gives the ability to utilize stock to complete acquisitions
- Provide stock options to attract and retain employees
- The company has to raise its own capital without the assistance of professional financier
- Self-management deviates a lot of time and attention from core business operations
- There may be ongoing financial and legal reporting requirements
- Exchanges have historically been reluctant to list companies minus the offering
- Such companies may not have sufficient liquidity and they face difficulty in meeting listing standards.
However historically seen, the way out is where such smaller market-cap companies up-list from the over-the-counter (OTC) market to a national exchange. Exchanges could establish value and liquidity of the shares from circumstances surrounding these companies to ascertain if the company meet their standards. The role of independent financial advisor comes to play in establishing whether a company indeed meets the listing standards of an exchange. There are many examples where niche groups that were exchanged registered did not trade on an exchange went for direct listing. In both scenarios, the exchanges could establish a value and liquidity of the shares from the facts and circumstances surrounding these companies.
How to tackle some prevalent issues related to Direct Listing:
- Need of the hour is to educate potential buyers and help a create demand for DPOs
- Due to low trading volume, a broad established investor base; especially institutional; would be missing as any offering needs big institutional investors to set the price right based on demand that gives a company the much-needed visibility and gains an investor insight through equity research papers published by an underwriting bank. Since these processes are missing there is an ardent need for a broker to push the issue.
- Underwriters to be readied for their research to support such companies
- Companies listed on other stock exchange/s approach BSE for the listing of its equity share and have to fulfil the eligibility criteria prescribed by the Exchange from time to time.
Presently a Direct Listing at BSE is broadly divided into three categories:
- Companies listed on Nationwide Stock Exchange with average daily turnover greater than Rs 500 Crores in equity segment
- Companies listed on Recognised Stock Exchanges with average daily turnover less than Rs 500 crores in equity segment
- Companies whose names are appearing on Dissemination Board of Nationwide Stock Exchanges
What is De-listing?
Delisting means permanent removal of stocks from the stock exchange. Promoters do this to increase their stake in the company, or when the company is poised to get merged or be acquired. However, the process can take six to eight months. This increases the value of such stock and as soon as the news float about delisting investors rush to acquire these stocks and gain advantage from short-term gains. However, for those who already hold shares, it’s a good decision to tender their shares if the company is giving a good price and you are not sure about the future of the company. Selling shares of an unlisted company are difficult to sell in the market A company needs to buy back 90% of shares which is the minimum requirement for delisting.
Type of Delistings
- Voluntary delisting where companies decide on its own to remove security
- Compulsory delisting is when securities of a company are removed from a stock exchange as a penal measure for not making submissions or complying with various requirements set out in the Listing agreement as per SEBI (Delisting of Securities) Regulations, 2009
Exit mechanism to the existing shareholders under delisting:
In Voluntary delisting, the exit price is determined through the Reverse Book Building process Investors who do not participate in the Reverse Book Building process have an option to offer their shares for sale to the promoters. The promoters are under an obligation to accept the shares at the same exit price. This facility is usually available for a period of at least one year
Criteria for voluntary delisting under Reverse Book Building process:
- Any company with paid-up capital of less than Rs. ten crore
- With a worth less than Rs. 25 Crores
- Whose equity shares have not been frequently traded on any recognized stock exchange for a period of one year
- Has not been suspended for any non-compliance in the preceding one year
Until the time a company is registered in a recognized stock exchange which has nationwide trading terminals and gets deregistered from one of the exchanges, it is not under any obligation to provide exit offer to shareholders.
We work closely with private companies through the whole process right from the initial planning and brainstorming to the ground implementation of all aspects. We work on behalf of a company to take the overall responsibility of Direct Listing activity. Our team of experience Charted Accountants and financial advisors in investment banking have all it takes to provide a reliable solution for Direct Listing of Offers on nation-wide stock exchanges like NSE, BSE, SX, MSEI. We have years of experience in handling with Direct Public Offering process for many groups trading, IPO and reverse mergers. MUDS also handle de-listing from de-recognized regional stock exchanges and registering it on BSE, MCX or SX etc. We just don’t believe in hasting things up but with careful execution, we would like to walk hand in hand and see you succeed. We don’t take on a client without doing all due diligence and unless we feel they are ready or have good chance to make it a success.
We are a reliable solution provider …
- If you are looking to go public, then MUDS is the right place you’ve come to.
- ISIN (International Securities Identification Number) generation at NSDL/CDSL
- Taking in principal approval
- Taking listing approval
- Drafting information memorandum and complying with other annexures requirements
- Listening and getting approval from stock exchange
- Furnish certified copies of agreements
- Certified copies of agreements with
- Managing agents and secretaries and treasurers
- Statement showing dividends and cash bonuses paid during the last 10 years
- Statement containing particulars of parties to all material contracts, agreements
- Annual reports, Quarterly results,
- Secretarial audit reports
- Advise on maintaining company website according to SEBI’s regulations and other compliance
- Sensitize company for site visit of BSE/NSE officials
- Submit Details of PAN/ DIN/ TAN
- Submission of TDS Certificate, processing fee to BSE
- Submission Networth Certificate, Certificate of Distributable profit, letter from Regional Stock Exchange, Secretarial Auditors report
- We undertake Submission of Certified copy of every letter, report, balance sheet, valuation contract
- Submit an updated Information Memorandum
- SCORES authentication. The company should have obtained SCORES authentication from SEBI and submit the ‘nil’ Investors Complaints Report extracted from SCORES.
Alternately Call our Legal Expert Now For Free Consultation at +91 9599672352
Thanks Muds Team for their all round support in successful delivery of services. Their approach is Client Centric and they possess the deep understanding of the Subject
Their Professional Approach blended with personal touch eases out all hassals in the Transaction.
We have been working with Muds since 4 years and their service is dependable. I highly recommend Muds in every facets of Business for the hassal free sleep.
Company Secretary - Hines
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