Friday, September 7, 2012

Delisting of Transgen Biotek : Can it be sucessful ?

With regards to my previous blog on Transgene Biotek, It was discussed that there was lack of clarity on the part of promoter with regards to delisting offer. 

They have now made an offer to delist the company from Indian Stock Exchanges and It wants to be listed on Luxembourg Stock Exchange only.

The Rational for promoter is that there is no appetite for shares which has such Pharma Research as business model and more over It has found an alliance of some FII (Name not disclosed yet) who is ready to fund company for expansion.

The offer price made by promoter as per SEBI guidelines is Rs 25/- against the CMP of Rs 10.77/-. 

I will discuss each pros and cons in details,

a) The Promoters hold on 9.78 % of the total equity, So they may need to buy at least 80.22 % of the Equity, but if we closely look at the shareholding, We will find that 73.44 % of the shares are held by custodians, for the shares listed on Luxembourg Stock Exchange.

Effectively they have to buy maximum 16.78 % of the shares and as per SEBI guidelines they can delist the shares if they are able to garner 8.39 % of the shares i.e 55,18,103 (As per Shareholding pattern of 30th June, 2012).

b) There were around 15 lakhs shares which were converted in June Quarter from GDR to underlying, conversion data after that date is not in public domain yet. If the more shares are converted, the offer quantity of the shares may rise.

c) Will SEBI permit such delisting ? Yes As per Sec 17 (a), The Promoters have to acquire minimum 9% of public shareholding excluding shares held by custodians, against which depository receipts are issued.

As per Sec 14(3), Depository receipts holders cannot participate in delisting offer, more over if the depository holder wants to participate in offer then they first have to convert the DR in Equity shares as per Sec 14 (4) of Delisting guidelines of SEBI.

d) What about the value of company : It is difficult to value such company, as data in public domain is scarce and understanding Research molecule price is not in my domain.

e) Looking at yesterdays volume and delivery volume of almost 25 lakhs shares, it seems more shares must have been converted from Depository receipt.

Can the delisting be successful ?

The company can technically delist the company and It may be possible to garner , required number of shares. Also at CMP of 10.77/- and base price of 25/-, the probability of tendering of shares by retails investors is high.

I still feel taking a call on tendering the shares or selling in market will be dependant on further data shared by the promoters and company.

This is not the recommendation to anybody whatsoever to buy or sell this share, but it is my thought process and views on this topic.

I welcome your critical comments and suggestions.

Thursday, September 6, 2012

What can we expect in OMDC ?

The Board of Director of Orissa Mineral Development Corporation has rescheduled the meeting on 13th Sep, 2012 to consider bonus.

Recently It has also declared split in the company in the ratio of 1:10.

What is the ratio of bonus we can expect in meeting ?

To answer the question, let us see the fundamentals

a) It has issued, subscribed and paid up capital of Rs 60 lakhs, recently it passed a resolution to increase its authorized paid up capital to 25 crores.
b) It has net worth if Rs 800 Crores against only 6 lakhs shares, it has no debt and cash of more than Rs 700 crores as on 31mar, 2012.

c) All its mines were closed because of environmental clearance, out of which it has got the permission to do mining in Khola - Rhodia.

d) It has decided to merge Bisra Limestone Company,(Group Company) with  itself.

Based on above fundamental reasons, it is easy to infer that they will give liberal bonus (To the extent of 40 shares) because of increase in authorized capital.

Can We expect such a liberal bonus ?

a) The Balance Sheet permits the company to give liberal bonus and maybe that will make shares more liquid on stock exchange.

b) But we are not sure that the increase of authorised capital is for bonus only or it also takes into account the increase because of merger of Bisra Limestone.

c) Also the company have appointed Merchant Banker to look at various aspect of merger with Bisra including the merger ratio.

It seems the company is giving split and bonus to pave way for the merger of Bisra. Stock price of OMDC is almost 53000/-  but Bisra is not a liquid stock with few share holders and no trading.

I tried to look at the balance sheet of Bisra Limestone:
a) Bisra has not made profit in last 5 years.
b) It has a huge capital of 87 Crores.
c) There will always be pricing pressure on company as its main client is SAIL which is also a PSU.
d) The Net worth of company is negative.
e) The company is looking for Capacity Expansion and Modernization.
f) There is an Income Tax Demand of Rs 137 Crores, It is also expecting Aid of Rs 137 Crores from Government.

I cant see anything positive in Bisra and the Rationale for merger is primarily Cash and Cash equivalents of OMDC which can be used by Bisra for modernisation.

The Fair value of Bisra cannot me more than Rs 20/-as they have mines, which are not renewed yet and also mining of limestone has not given any returns to company in last 5 years. Also they have mentioned in B/s that business scenario is becoming more and more competitive.

After reading all these, maybe now we can take some conclusion about the bonus,

The Bonus is about merger and not liquidity. We can expect a liberal bonus but please keep tab on merger ratio of Bisra, which if unfavorable can take value away from the company.

The expected scenario for OMDC can be Split of 1 : 10 and Bonus of 1: 24 taking no of shares to 250 and the merger ratio of Bisra can be 1 sh of OMDC (1 Rs Paid up)  for every 10 sh of Bisra.

Also I expect a special dividend from OMDC as It is cash rich company and Bisra has negative net worth. OMDC has almost Rs 11,500/- of cash and cash equivalent PER SHARE.

This is not the recommendation to anybody whatsoever to buy or sell this share, but it is my thought process and views on this topic.

I welcome your critical comments and suggestions.

Wednesday, September 5, 2012

Special Situation : Tax Free Returns of 15 % ?

There is a special situation of Preference Shares of JSW Ispat Industries. Its preference shares are listed on BSE (700109) and NSE (Jswispat , P1).

The Interest of Preference shares is 0.01% per annum, The face value of shares is Rs 10/- redeemable at par for 15th Jun 2018 is 8 Quarterly installment.,17/04/2006,20/04/2006,,Equity,All,All,Scrip%20Name%20/%20Code,,

If you buy these preference shares, at CMP of Rs 3.95/- your yield is 15.03 % , which is Tax free because, when these shares are to be redeemed, you can very well sell in market by paying STT and claim Capital Gains which is Tax Free.

These Shares are listed since 2006, but with the merger of JSW Ispat with JSW Steel has changed the Risk profile of these preference shares and suddenly they have become investment grade.

This is not the recommendation to anybody whatsoever to buy or sell this share, but it is my thought process and views on this topic.

I welcome your critical comments and suggestions.

Tuesday, September 4, 2012

Delisting in Transgene Biotek Limited ? Can it happen without open offer ?

Today on 4th April, In Board of Directors meetings of Transgene Biotek Limited, It was decided to delist the stock from all recognized Stock Exchanges in  " INDIA " , subject to Shareholders and Statutory approval.

This is a unique case of delisting, because 

a) The stock is listed on BSE in India also It is listed on Luxemburg Stock Exchange.

b) The company infers to delist the shares from Indian stock Exchanges, but have not spoken about Exit opportunity for minority investors.

c) It seems that Board of Directors seems to infer delisting guidelines that they are not delisting it from all recognized Stock Exchange as it is listed on Luxemburg Stock Exchange though it is based outside India.

I fail to understand How can the company delist the stock without delisting offer ? because
a) Transgene Promoters are not making the delisting offer.
b) Section 6 of delisting guideline says the Exit opportunity needs to be given to minority shareholders, if the shares are to be delisted from all recognised stock exchange.

c) Recognised Exchanges as per Sec 6 refers to NSE, BSE or any other Exchanges which has nation wide terminal. Luxemburg Stock Exchange does not have nation wide terminals in India.

d) As on 30th June 73.44 % of the shares are held by depository receipts. down by 15 lakh share from previous quarters of 75.72% effectively, These shares are converted in equity shares and maybe sold. also we don't know what has transpire after 30th June.

Can it be a ploy for Price Rigging as Delisting from all stock Exchanges will not be possible without delisting offer ?

What about the fundamentals ?

a) It reported Sales of 5.44 Crore and PBT of 19.20 Crores ???? No notes

b) The Company claims to be engaged in Research of Molecules but there seems no major research Expenses, more over they have generated income from trading also.

c) It claims of several molecules to be under research and trials but no milestones or achievement.

d) It has huge IPR and Capital Work in progress ?

e) It claims to have 65000 sq feet of World class facilities over 3.2 acres of land in Bangalore.

Is this Just a paper company ? No

a) It is hard to believe it is a paper company, because its research is presented in scholarly articles.

b) They have physical assets.

c) They have paid tax in last quarter.

d) The Promoters have not sold their stake at all, The have stake of 9.78%, which is only because of dilution of shares.

Overall I perceive delisting is not possible without exit offer, but taking a call on the company is only possible if the promoters are more transparent.

This is not the recommendation to anybody whatsoever to buy or sell this share, but it is my thought process and views on this topic.

I welcome your critical comments and suggestions.