In a merger, two companies combine into one, and shareholders of the merging company receive shares of the combined entity in a fixed swap ratio. In a demerger, a company splits off part of its business into a separate company, and you receive shares of the new company in addition to what you hold.
What is a share swap ratio?
When companies merge, someone has to decide how much of the new entity each set of shareholders deserves. That is the swap ratio (or share exchange ratio), worked out from independent valuations of both businesses and approved by boards, shareholders and the courts/tribunal.
Say Sundar Textiles is merging into Himalaya Agro, with a swap ratio of 2:5, two shares of Himalaya Agro for every five shares of Sundar Textiles. Farhan holds 250 shares of Sundar Textiles. On the record date, his entitlement is 100 shares of Himalaya Agro. His Sundar Textiles shares are extinguished, and the new shares are credited to his demat account. As with every corporate action, eligibility follows the record-date rules explained in what is the difference between record date and ex-date.
Ratios rarely divide evenly. If a holding works out to a fraction of a share, the fractional part is typically sold by a company-appointed trustee and the cash proceeds are paid to the shareholder.
What happens in a demerger?
A demerger is the reverse: one company carves out a business. Say Bharat Paints Ltd separating its chemicals division into a new company, Bharat Chemicals, so each business can be valued and run on its own. Shareholders keep their existing shares and additionally receive shares of the new company in an announced ratio, for example 1:1.
On the ex-date, the parent's share price drops by roughly the value of the business that left it. That drop is not a loss: the value has moved into the new shares you will receive. Your P&L on the parent may look bruised until the new company's shares are credited and listed. The same "price fell but I didn't lose money" effect described in how corporate actions affect the share price and my P&L.
Why can't I trade some shares during this period?
Around the effective date, there are windows when trading is restricted. The company that ceases to exist is suspended from trading and eventually delisted. See what does delisting mean for how that works. The newly created company from a demerger cannot trade until it completes listing formalities, which takes some weeks after the shares are credited. During that stretch you own the shares but cannot sell them.
What if the demerged company is not listed?
Listing is not guaranteed. A demerger can leave you holding shares of a company that is not listed on any exchange, either because the listing formalities are still some way off or because the separated business was never going to be listed in the first place. You own those shares either way. They are credited to your demat account like any other demerger entitlement.
What changes is where you can see them. An unlisted company has no exchange-traded price, and the trading platforms are built around live prices and order placement, so an unlisted holding does not show up in the Rupeezy app or on Rupeezy web. Your demerged shares are always visible in Dock, under Portfolio, along with the rest of your holdings. See where can I see my unlisted stocks for what Dock shows and why there is no profit and loss figure against them.
If the company does complete its listing formalities later, the shares begin showing in the trading platforms with a live price, and you can sell them from there.
| Event | What you hold afterwards |
|---|---|
| Merger (2:5 swap) | Shares of the surviving company; old shares extinguished |
| Demerger (1:1) | Your original shares plus shares of the new company, listed or unlisted |
Things to keep in mind
- You don't need to apply for anything. Swap and demerger shares are credited to your demat account automatically if you held on the record date.
- Expect a gap of weeks between the record date and the day new shares list and become sellable; exact timelines differ case by case, and some demerged companies do not list at all.
- A demerged holding that is not listed still appears in Dock under Portfolio, even though it is absent from the Rupeezy app and Rupeezy web.
- Fractional entitlements are usually paid out as cash, not shares.
- The combined or separated businesses may be valued very differently by the market afterwards. A merger or demerger changes what you own, not just how it is labelled.
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