When a government-controlled company exits the stock market, several questions arise for its shareholders: how will the shares be valued, what exit choices will investors have, and what happens if they decide to remain invested?
These questions have gained importance after Sebi introduced a special framework for voluntary delisting of PSUs.
Under the new framework outlined in Sebi’s annual report for 2025-26, the regulator has sought to address some of the difficulties shareholders faced under the earlier system by introducing specific safeguards aimed at protecting investor interests.
For retail investors holding smaller stakes in such companies, understanding how the exit price will be determined and what options will remain available after delisting is particularly important.
WHAT DOES DELISTING MEAN?
Delisting refers to removing a company’s shares from a stock exchange, after which they can no longer be freely traded on the market. For retail investors, this is significant because once the shares are delisted, the stock exchange no longer provides an easy route to sell them.
The special delisting mechanism applies only to certain PSUs. An eligible company must be a PSU other than a bank, NBFC or insurance company, while the Government of India and/or other PSUs must together hold at least 90% of its total issued shares.
Therefore, the new rules do not mean that every government-owned company can automatically use this route to delist.
WHY DID SEBI INTRODUCE A SPECIAL FRAMEWORK?
When the government or promoter group holds 90% of a company, only a small proportion of its shares remains with public investors. Under the previous framework, the floor price for frequently traded shares was linked to the 60-day volume-weighted average market price.
The report said, “Because these entities are government-backed, they are perceived as lower risk, leading to inflated market prices that far exceed their book value. Under the erstwhile framework, the floor price was determined using a 60-day volume-weighted average market price. For frequently traded PSUs, this methodology often resulted in an inflated floor price that did not reflect intrinsic value, thereby imposing a disproportionate budgetary burden on the Government.”
Such a pricing mechanism could make it costly for the government to purchase the remaining shares from public shareholders and complete the delisting process. The new framework is intended to make voluntary delisting more practical for eligible PSUs.
In such situations, the market price may not always accurately represent the company’s underlying financial position. Limited public share availability and the perception of government backing can push the market price higher.
This created a gap between the market price and the company’s underlying value, raising concerns about how shareholders would receive adequate price protection during an exit.
For retail investors, the central question therefore remains: how much will they receive if the government or PSU seeks to purchase their shares?
HOW WILL DELISTING AFFECT RETAIL INVESTORS?
Under the previous delisting process, shareholder approval was required, including a two-thirds majority supporting the proposal. Sebi has now removed this requirement for eligible PSUs.
Instead, an eligible PSU can use a fixed-price delisting mechanism. Sebi has specified a process for determining the minimum price that must be offered.
The calculation will consider three measures.
The first is the volume-weighted average price paid or payable by the acquirer for acquisitions made during the preceding 52 weeks.
The second is the highest price paid or payable by the acquirer for any acquisition during the previous 26 weeks.
The third is a price determined through a joint valuation report prepared by two independent registered valuers. This valuation will consider various financial parameters as of the relevant reference date.
The floor price will be the highest of these three values.
The mechanism is intended to provide shareholders with greater protection at the time of exit instead of relying entirely on the prevailing market price. According to Sebi, this addresses concerns over whether investors are receiving fair compensation.
INVESTORS TO GET 15% PREMIUM
One of the key provisions of the new framework concerns the premium available to shareholders.
Eligible PSUs using the fixed-price delisting route must offer a price at least 15% higher than the determined floor price.
The actual offer price in each case will depend on the applicable floor-price calculation and the specific terms of the delisting proposal.
For retail shareholders, the two key figures to track when a PSU announces delisting will therefore be the calculated floor price and the final fixed offer price.
WHAT HAPPENS IF YOU DO NOT SELL?
Not every shareholder may choose to tender their shares immediately after a PSU announces delisting.
If shareholders do not sell their shares within one year from the date of delisting, the securities will no longer remain listed for trading. The new framework provides a mechanism for handling the money payable to investors who did not exit during this period.
If the eligible PSU is struck off within 30 days after the one-year period ends, the amount payable to shareholders who did not sell their shares will be transferred to an account maintained by the designated stock exchange.
The exchange will retain the funds for seven years, allowing investors time to approach it and claim their money.
If the amount remains unclaimed after seven years, it will be transferred to the applicable investor protection fund — the Investor Education and Protection Fund (IEPF) for entities covered under the Companies Act, 2013, or Sebi’s Investor Protection and Education Fund (IPEF), as applicable.
Even after the funds are transferred, investors can approach the designated stock exchange to make a claim. The exchange can then seek reimbursement from the relevant investor protection fund.
Therefore, failing to sell during the initial one-year exit period does not immediately mean that investors lose the money payable to them. The framework creates a longer process through which shareholders can claim their dues, initially via the stock exchange and subsequently through the applicable investor protection mechanism.
SO WHAT CHANGES FOR RETAIL INVESTORS?
The new framework is primarily aimed at making PSU delisting simpler while ensuring that shareholders retain a defined exit mechanism.
For retail investors, the key benefit is greater price protection rather than an assurance of profit. They may receive a premium if the delisting offer price is above the price they originally paid, but the rules do not guarantee that investors will make a profit.
The framework creates a more structured process in which eligible PSUs have a simpler route to delist, while shareholders receive a defined minimum price and a specified period in which to exit.
Even investors who do not sell within that period have a mechanism through which they can eventually claim the amount due to them if the company is subsequently struck off.
For retail shareholders, therefore, the most significant change is not merely that PSU delisting has become easier.
It is that when an eligible government-controlled company decides to leave the stock market, there is now a defined framework covering the calculation of the exit price, the minimum premium to be offered and the treatment of shareholders who do not immediately tender their shares.
