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)
Advantages of a DPO
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:
Presently a Direct Listing at BSE is broadly divided into three categories:
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
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:
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.
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