My stock got delisted, what should I do?

James Ryan Jonas

One of the things that could certainly shock a newbie stock investor is the prospect of a stock getting “involuntarily delisted”.

Being “delisted” means the stock ceases to be “publicly traded” — that is, it can no longer be traded in the stock exchange. Simply put, as an investor, you can no longer buy or sell a delisted stock in the Philippine Stock Exchange (PSE).

If this happens, what should you do?

Delisted stock in PSE, what to do?

First things first: no need to panic. It’s not like the delisted company has vanished and there’s no way for you to get your money back. You have not lost your money — not yet, that is — but frankly speaking, you should be ready for the possibility that you might incur a monetary loss. Read more below why.

First off, take note that there are two types of delisting in the PSE: Voluntary and Involuntary Delisting.

1. Voluntary Delisting in the PSE

Voluntary Delisting is when a company voluntarily decides to remove its stock as a traded security on the exchange.

Why would a company choose to voluntarily delist? They might do so if they believe they won’t be able to comply anymore with the listing rules of the exchange or if they think going private would be a better strategic move.

Voluntary Delisting of stocks in the PSE

Here are examples of Philippines companies that filed for voluntary delisting in previous years.

Delisting of Metro Pacific Investments Corp. (MPI)

On April 27, 2023, Metro Pacific Investments Corp. (MPI) — the Manny Pangilinan-led conglomerate that owns Meralco, Metro Pacific Tollways Corp., and Maynilad, among others — filed for voluntary delisting from the PSE.

MPI’s decision to delist was driven by a number of factors, including its desire to simplify its corporate structure and reduce compliance costs. A press release issued by the company also stated that the owners “feel that the intrinsic value of MPI’s core investments in infrastructure in the Philippines has not been fully reflected in MPI’s share price for some time.”

A consortium of companies, which includes First Pacific Co. Ltd., GT Capital Holdings, Inc. (GTCAP), and Mitsui & Co. Ltd. submitted a tender offer notice with the intention to acquire all outstanding common shares of MPI, paving the way for a full voluntary delisting.

The initial tender offer was to buy out the shares of minority shareholders at P4.63 per share. This price, however, was deemed “too low” by several market analysts and shareholders. The general consensus then was for minority shareholders to not tender their shares in order to force the bidders to revise their offer price upwards.

It worked and on July 2023, MPI and the bidders announced that the tender price will increase from P4.63 to P5.20 per share. This new price supposedly offers a 37% premium over the one-year volume-weighted average price (VWAP) of MPIC common shares from April 27, 2022 to April 26, 2023. MPI announced that the tender offer will run from August 9 to September 7, 2023, with the final offer price set at P5.20 per share.

The tender offer suddenly became more complicated when the Government Service Insurance System (GSIS) announced on September 2023 that it has acquired an additional 2.5 billion shares of MPI in the open market from August 23 to September 4, raising its total stake in MPI to 12%. Rumors abound that the tender offer could fail with the GSIS share purchase, as MPI needs to acquire at least 95% of outstanding common shares.

It was ruled afterwards that since the GSIS shares exceeded 10% of MPI’s total outstanding shares, these shares will be considered non-public and won’t be included in the determination of minority shares for the tender offer. For its part, GSIS relayed its intention to remain a shareholder of MPI even after the company has delisted.

The tender offer successfully ended by the end of September and MPI will consequently voluntarily delist from the PSE on October 9, 2023.

Delisting of Melco Resorts and Entertainment Phils. Corp. (MRP)

Another example of a company that initiated its own Voluntary Delisting was Melco Resorts and Entertainment Phils. Corporation (MRP). It initially announced its delisting plan on September 2018, then backtracked and withdrew the delisting plan on October 2018, then finally decided to push through with it on December 2018.

Melco Resorts or MRP, the operator of casino and entertainment resort “City of Dreams Manila”, completed a tender offer acquiring 1.4 billion out of the 1.6 billion outstanding common shares. The tender offer price for MRP was P7.25 per share.

According to the company’s press release, they decided to delist to allow its majority shareholder, MCO Philippines Investments Ltd., to “better support and facilitate MRP’s future business plans.”

MCO believes that MRP’s listed status “has not contributed to its ability to raise funds despite considerable efforts and expenses being incurred to maintain its listed status,” the company added.

MRPs’ delisting from the PSE became official and effective on June 11, 2019.

Delisting of Energy Development Corp. (EDC)

Also in 2018, shares of Energy Development Corp. (EDC) were removed from the PSE effective November 29, 2018. During its tender offer, EDC bought back around 2.01 billion common shares at P7.25 each, acquiring 10.72% of the company’s outstanding shares.

After the tender offer, only around 0.16% of common shares remained with the public, thus breaching the 10% minimum public ownership requirement rule then of the PSE.

According to the company, it decided to to delist to be able to “pursue a corporate strategy that would require greater flexibility to support the company’s long-term growth.”

Delisting of Splash Corporation (SPH)

Another example of a company that filed for voluntary delisting was Splash Corporation (SPH) back in 2016.

The company’s stock, then trading as “SPH” in the PSE, voluntary delisted upon the request of Splash Corp. based on “the low trading volume of SPH shares over the last 24 months, the response of the investing public to the ongoing share buyback program, and the company’s desire to avoid telegraphing its business plans to its competitors.”

Other companies that previously sought voluntary delisting include Alaska Milk Corp. (AMC), Eton Properties (ETON), and San Miguel Properties (SMP) which all found it difficult to comply with the PSE’s 10% minimum public ownership rule, thus, the decision to delist.

Beginning August 3, 2020, the PSE has increased the minimum public ownership or public float from 10% to 20%. This means companies who will list and be traded in the PSE must ensure that at least 20% of their shares are held by the general public and are freely available in the market.

Canceled Delisting of Lopez Holdings (LPZ)

Another interesting case of delisting (that eventually did not push through) was the case of Lopez Holdings Corp. (LPZ). LPZ is the holding firm and parent company of renewable energy company First Philippine Holdings (FPH) and media and entertainment company ABS-CBN (ABS).

On December 1, 2020, LPZ filed a voluntary delisting request with the PSE in a bid to “streamline” the number of listed companies owned by the Lopez Group. The original plan was for First Philippine Holdings Corp. (FPH), the Lopez-run company operating in the power sector, to purchase up to 45.59% of LPZ’s outstanding shares held by minority investors at P3.85 each.

To execute the delisting, FPH made a tender offer to acquire LPZ stocks at a price of P3.85 per share. FPH’s tender price of P3.85 was a 25% premium on the P3.08 closing price of LPZ shares on November 27, the last trading day before the delisting request was announced.

Interestingly, though, prior to the start of the tender offer, the conglomerate announced on January 2021 that it is revising its plan to reduce the number of LPZ shares that FPH will purchase through the tender offer.

Instead of acquiring a maximum of 2.069 billion common shares, representing 45.59% of total LPZ shares, the tender offer merely targeted to acquire a maximum of 1.57 billion common shares, equivalent to just 34.5% of the holding firm’s total outstanding shares.

As such, even after the tender offer, LPZ’s minimum public ownership did not fall below 20% — the PSE’s minimum public ownership requirement for publicly listed companies — which is why LPZ did not have to continue with voluntarily delisting.

2. Involuntary Delisting

The second, and more shocking type, of stock delisting is Involuntary Delisting, which from the name itself suggests that the removal was not intended by the company and most likely came about as a result of the penalty imposed on it by the exchange.

Involuntary Delisting of PSE stocks

Here are examples of companies that suffered the fate of Involuntary Delisting in the Philippine Stock Exchange.

Involuntary Delisting of Calata Corp. (CAL)

In 2017, the PSE initiated involuntary delisting procedures against Calata Corp. (CAL) after CAL’s owner and CEO Joseph Calata was found to have repeatedly violated “multiple disclosure requirements” and the “blackout rule” that bans directors and principal officers, who possess certain material information about their companies, from trading their shares within a prescribed period.

Specifically, Calata Corp. was found to have committed 55 violations of the PSE disclosure rules between October 2016 and June 2017, which require publicly listed firms to disclose changes in the shareholdings of its directors and principal officers in a timely manner.

The PSE alleged that owner Joseph Calata traded CAL shares multiple times, but the company did not disclose such transactions within the required five (5) trading days.

In addition, the PSE alleged that Calata committed 26 violations of the “blackout rule” banning directors and principal officers of a company from trading shares during a period when they were exclusively in possession of material non-public information. As penalty, the PSE slapped CAL with a one-month trading suspension beginning June 30, 2017.

CAL was eventually forced out of the PSE — that is, delisted involuntarily — on December 11, 2017. Its owner Joseph Calata was also slapped by the bourse with a permanent ban to lead or sit on any board of a PSE-listed company. The rest of Calata Corp.’s Board of Directors were similarly banned by the PSE for a period of five (5) years.

The PSE initially offered CAL to voluntarily delist if it can conduct a tender offer to minority shareholders. The company, however, argued that they cannot do so as the tender offer could cost them about P1 billion assuming the tender price would follow the book value of P3.00 per share. Mr. Calata rejected the PSE’s suggestion for voluntary delisting, saying it could bring his company to bankruptcy.

Mr. Calata continued to challenge the PSE’s decision and brought the case to the Securities and Exchange Commission (SEC) and to the higher courts. As an update, the SEC on January 2019 upheld the decision of the PSE and the involuntary delisting of CAL.

On October 2019, the Court of Appeals (CA) affirmed the indictment of eight shareholders of CAL deemed to have engaged in illegal high-frequency, high-volume trading and stock transfers from one broker to another, artificially raising the price of CAL’s shares.

Involuntary Delisting of Alphaland Corp. (ALPHA)

One other company that was penalized with involuntary delisting by the PSE was Alphaland Corp. (ALPHA) in 2014 over “repeated violations of disclosure rules” following allegations of simulated share sale between Ashmore Investment Management Limited / Alphaland Holdings (Singapore) and Credit Suisse (Singapore).

The PSE ordered the delisting of Alphaland on September 8, 2014 because the company allegedly failed to consistently submit “full, fair, accurate, and timely disclosure of material information.”

A tender offer was made to minority shareholders and the stock was tendered back to the company at P9.03 per share.

Penalties for Involuntary Delisting

What’s the penalty against companies that involuntarily delist from the PSE? Companies slapped with an involuntary delisting penalty are not allowed by the PSE to re-list within the next five (5) years. Directors and officers of said company are also disqualified from becoming directors or officers of any other company applying for listing within the same period.

Should I sell my stocks if there is a Tender Offer?

Companies whose stocks will be delisted are required by law to make a Tender Offer to minority shareholders to acquire the shares back.

The Tender Offer is an offer and invitation by the company to buy back shares at a fixed, predetermined selling price. This fixed acquisition price is called the Tender Offer Price or Tender Price.

Regardless if the company will undergo voluntary or involuntary delisting, the PSE requires delisting companies to make a tender offer. This move is supposedly intended to protect the interest of minority shareholders. During the tender offer, the company will invite stockholders to tender and sell their shares at the given offer price and predetermined period.

What should you do if the company makes a Tender Offer? Well, you may choose one of three options below.

Option #1: Accept the Tender Offer

This is a good option when the offer price is higher than the current trading price of the stock.

Accepting the offer is also a better option if the company is scheduled to be permanently delisted from the PSE, which means the stock will no longer be traded in the exchange.

Option #2: Sell the stock in the open market

Instead of selling the stocks back to the company, the investor may alternatively choose to just unload and sell the stocks in the open market, that is, through the PSE.

This is a viable strategy if the stock price in the market is higher than the offer price of the company.

Option #3: Decline the Tender Offer and keep the shares

If the offer price and current market price is way below your acquisition cost, you may choose to hold on to the stocks. This means, however, that upon delisting, the stock will no longer be tradeable in the PSE.

What happens if I decline the Tender Offer?

If you decided not to participate in the tender offer, this means you will hold on to the shares even though they will no longer be traded in the PSE.

You will need to convert the scripless / electronic shares into stock certificates (paper form) which can be done through your broker by filling out and submitting request forms, payment of fees, and in some cases personal appearance at the company’s stock transfer office. This process is called “uplifting” of shares, which is simply the conversion of electronic shares into a stock certificate.

Upon upliftment of stocks you own, the shares will no longer be reflected in your online trading account. Your proof of ownership are the stock certificates you hold so make sure you don’t lose them.

Since these shares can no longer be traded in the PSE, sale of stock certificates will be done through the stock transfer office of the company instead of the stock exchange.

What happens when a stock gets delisted?

The good news is that investors who own shares of the delisted company do not lose their rights as stockholders of the company. Even if the stock is no longer traded in the PSE, investors still get to receive dividends (if and when they are distributed), participate in stockholder meetings, and retain their vote in corporate matters up for approval.

The bad news, however, is that:

1. It’s now more difficult to find buyers of the shares because the stock is not widely available as before since it’s no longer traded in the PSE;

2. In the absence of liquidity and open market pricing, the stock price could fall since prices will be set through direct negotiations only between buyers and sellers; and

3. Higher capital gains tax are paid on gains from the sale. Delisted or privately-held stocks are charged a capital gains tax rate of 15% under TRAIN law.

What are options for holders of a delisted stock?

Unfortunately, shareholders looking to sell their shares have very limited options once the stock has been fully delisted from the exchange.

Here are two (2) options for stockholders of a delisted stock:

Option #1: Find a direct buyer of the stocks

Investors can scout for potential buyers who might be interested to acquire shares of the delisted company. This could prove to be difficult, though, since the stock is no longer made available for sale in the PSE.

Still some investors who would want to bet on the company (with a likely belief that the share price would appreciate if and when the company is re-listed) might show interest to acquire the shares at a negotiated price.

Take note that as per the approved TRAIN law, the capital gains tax on sale of stocks not traded in the PSE is 15%.

Option #2: Continue holding on to the shares

Stockholders who can’t find direct buyers of the shares will simply have to hold on to the shares.

As mentioned earlier, they still get to retain their rights as stockholders, but a definite disadvantage is the lack of liquidity due to the absence of open market trading for those shares. Investors can still earn from dividends, if declared and distributed, and can choose to sell those shares if there is a willing buyer.

Alternatively, investors can wait for the stock to be listed on the exchange again and possibly benefit from the exponential increase in price. But that could happen many years later — or perhaps, not at all.

So if you’re a stockholder of a company planning on delisting its shares, decide which of the options above would be good for you. Otherwise, if you chose the wrong move, you might end up being a stuck-holder. Pun intended 🙂

James Ryan Jonas teaches business management, investments, and entrepreneurship at the University of the Philippines (UP). He is also the Executive Director of UP Provident Fund Inc., managing and investing P3.2 Billion ($56.4 Million) worth of retirement funds on behalf of thousands of UP employees.