Decoding delisting and reverse book building: Unraveling exit strategies

When a company decides to delist and provide an exit opportunity to shareholders, they often opt for Reverse Book Building (RBB).

In the world of stock markets, while many companies eagerly aim to make their debut on Dalal Street, others seek opportunities to exit. This process, commonly referred to as delisting, can occur in two ways: voluntarily or compulsory.

When a company decides to delist and provide an exit opportunity to shareholders, they often opt for Reverse Book Building (RBB). Unlike traditional Book Building during an IPO, where shares are issued to investors, RBB involves buying back shares from public shareholders. The company sets a floor price, below which shareholders can tender their shares. Shareholders then submit bids, specifying the number of shares they're willing to sell and at what price.

In a Reverse Book Building scenario, let's take the example of Company XYZ, which aims to delist its shares from the stock exchange. Believing its shares are undervalued, the company initiates the process by setting a floor price, the minimum it's willing to pay per share.

 Shareholders then submit bids through brokers, stating the number of shares and desired selling price. The bidding period allows for bid revisions or withdrawals. After evaluating bids, the company determines the final buyback price.

If oversubscribed, priority may be given based on set criteria. Successful bids lead to share buybacks, ultimately resulting in delisting from the stock exchange.

Additionally, the process of Reverse Book Building isn't solely limited to delisting purposes. Companies also commonly utilize it when planning buybacks, as they repurchase their shares from investors during this process.

One of the benefits of Reverse Book Building (RBB) to investors is that it provides them with an opportunity to sell their shares at a price higher than the prevailing market price. This mechanism allows shareholders to tender their shares at a price they find acceptable, potentially resulting in a better return on their investment.

 Additionally, RBB offers transparency in the share buyback process, as shareholders can submit their bids indicating the number of shares they are willing to sell and at what price. This gives investors more control over their investment decisions and ensures a fair and orderly process for all parties involved.

Disclaimer: The article is for informational purposes only and not investment advice.