Delisting of Chettinad Cement : Nicely Managed ?

These is an interesting case where discovered price in RBB was much less than prevailing price. Guess Promoters have managed the delisting very well to avoid paying higher price to retail share holders.?

Chettinad Cement is a 5 decade old cement company in South India. The Company belongs to solid and diversified group having interest in Power, Cement, Education, Logistics, Coal Terminal etc.

 

Chettinad Cement came out with delisting proposal in 15th May,2012 and it has concluded recently concluded its RBB(Reserve Book Building), The Floor Price of the Share in RBB was Rs 540/- and Discovered price came at Rs 720/-.

The Promoter holds 88.44 % in the company and they needs only 5.78% of the share to delist the company. Or they needed around 2.208 million shares to delist the company. Of these 4.35% is held by 2 entities or 16.61 lakhs shares were held by 2 entities, Which they are holding since very long time. We can infer that 2 non promoter entities must be having interaction with promoters. Apart from these no entity holds big chunk of shares. 

If we closely look at shareholding pattern 5.08% are held by corporate bodies and 3.25% with Financial institutions. If we look at the Shareholding pattern, Corporate bodies share holding has been increasing steadily. And it seems Financial Institution TIIL and Corporate bodies have together done bidding in RBB and seems Retails Shareholders did not had a say in RBB. 

Looking at the RBB book of Chettinad cement, we can infer that 2306882 shares were tendered up to Rs 720/- were mostly from TIIL and Corporate bodies. Not more than bids of  10000 shares were received above Rs 720 /-, Which I guess they must have been tendered by Retail Share Holders.

Looking at the RBB book of Chettinad cement, It makes me feel that Retails investors in the company are taken for a ride. The Market price after the news had shot up to Rs 1000/- and Market price on the eve of opening of RBB was Rs 920/-. Then Why would somebody bid at Rs 640 to 705 on the first day of RBB if the ruling price was above Rs 900/-?

I guess any investor if he wanted to exit from the company, he would have first sold it in open market where the price was higher by almost 30 %. There was no question of liquidity because 200 Moving average is almost Rs 825/-, which means the seller would have been able to sell it , Rs 1000 was the top but average price of Share was almost Rs 825 /- from the date of declaration of Delisting to RBB. Also More than 17,00,000 shares have been traded in the meantime and more than 10,50,000 shares were marked fro delivery. I am sure investor would have got an easy exit. And at times looking at the price of share on exchange, I always felt there was committed buyer in stock.

Also can we say that at least 50 % of the delivery volumes would have gone in strong hands, who would have taken delivery for delisting. No Investor would by at higher price when he know that there is delisting of shares. Can we Infer that strong hands who collected shares from the market offered shares at lower price in RBB at the cost of other retail Investors, who would expect premium to market price in delisting. I am sure there is a case of suppressing of price in delisting with the help of few unknown entities. Can SEBI look in the matter. These is an interesting case where discovered price in RBB was much less than prevailing price. Guess Promoters have managed the delisting very well to avoid paying higher price to retail share holders.?

These also leads me to bigger systemic issue, There are many OFS coming in market and most of the OFS of multinational companies are subscribed by a single entity at a price higher than market price. (Eg 3M came out with OFS and the floor price was Rs 3300/-  , Only one entity subscribed to whole OFS at Rs 3950/-) Can these entities be used to delist  the company after some years and at a depressed price ? I am sure retail investor will have nobody to look at except SEBI.

If we also look at valuation of the company, It was trading at 18 times of EPS of 2012, with many project in pipeline, which would increase the EPS later. We can see fall in FY12Q3 earning , but that happens in most companies which goes for delisting (The intention is to make company look less attractive) Also the company being very old must be having a good land bank and would have many assets at o value because of depreciation. The company has a book value of Rs 283/- as on Mar 2012. If we look at replacement value of these cement company, We would find it much cheaper.

Looking at the bidding pattern in Reverse Book Building of Chettinad Cement compelled to infer that delisting is managed, which SEBI should look into? Seem some strong hand had accumulated shares in market and have participated in RBB at lower price to depress the price, which otherwise the promoter would have to pay everybody.

This is not a 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.

PS : I don't have position in these stock.

Life after unsucesful Delisting : Ricoh India

Ricoh India came out with delisting offer, Which closed on 20th November 2012. The required shares in delisting offer was at least 65 lakhs shares, whereas they were able to garner only 40 lakhs shares out of almost 105 lakhs shares.

http://www.bseindia.com/markets/publicIssues/DispIPOIssues.aspx?id=535&type=REV&idtype=2&status=H&startdt=11%2f5%2f2012

The delisting in this stock was unsuccessful due to lower participation by retail public in delisting offer. What is to be noted that the floor price of Ricoh India was Rs 53.79 /- and as per media reports they wanted to increase the offer price to minimum Rs 95 /- , which was declined by exchange authorities because the request to revise the offer price was given on the eve of opening of offer.

The price at which, it  was quoting was in the range of Rs 75/- - Rs 85/- during the period after the announcement of delisting, it is now quoting at Rs 53/-.

Is there anything in store for us ?

a) The Delisting offer was voluntary as they hold 73.60% in the company , below the 75% mark for compulsory delisting.

b) Ricoh India is subsidiary of Ricoh of Japan, It has almost 1 lakh employees and it has reach in all geography.

http://www.ricoh.com/about/company/data/index.html

c) The company is in proving Office automation solution (Multifunction , Copiers, Printer, Facsimile, Printers, Projectors) along with digital cameras and Managed Document Service.

http://www.ricoh.com/

d) Company is also engaged in huge advertising of Digital cameras and they have captured a good share in market.

e) The company has recently taken over a small company InfoPrint Solutions P Ltd, which gives printing solutions to corporates.

http://www.infoprint.in/internet/ipww.nsf/vwwebpublished/home_en

f) The Company is making losses since 2 quarters which happens for most delisting candidates also 

g) Q3 FY12 sales have gone up by almost 63 % (Partially because of merger of Infoprint solution P Ltd).

h) The company has small long term debt, Current liabilities and Current assets have mismatch, in fact they have negative working capital ? Need to look at it minutely.

The company seems to have multiple growth triggers and we can also bet on commitment of the company as they were ready to delist the stock.

Also the company has low floating stock and there are probabilities that they may try to delist again in future, The returns on stock will be more for investors, if it remains listed in long run.

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.

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.

http://www.bseindia.com/stockinfo/anndet.aspx?newsid=d1aba229-6546-48eb-b531-4edb1e1a3ce2

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.

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.

http://www.bseindia.com/stockinfo/anndet.aspx?newsid=c18dcafa-8ef9-436d-b701-1a1863b4c3af&param1=1

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.

http://www.bloomberg.com/quote/TB:LX

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

http://www.bseindia.com/bseplus/StockReach/StockQuote/Equity/TRANSGENE%20BIOTEK%20LTD/TRABI/526139/Scrips

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.

Special Situations in APW President Ltd

APW President Systems was taken over by Schneider in May, 2011. They now holds 75% stake in the company and they have made an voluntary offer to delist the company in December, 2011. The proposed price for delisting is Rs 195/-.

The Company have already taken shareholders approval and In Principle approval from Stock Exchange for delisting. The Company will have to come out with delisting offer by January, 2013. 

Schneider Electric have taken over several business in recent past Luminous, Smartlink, Zicom and APW by paying top dollar for each buys. Their strategy for all acquisition except APW  was to buy business of the listed company and not the company itself. One of the rationale is reduction of compliance and quicker decision making without involving interest of minority shareholders.

The company had paid 1 times of sales when it took over from Indian promoters. They have also paid up to 6 times of sales to buy Zicom and Smartlink , though we must understand that APW sales are stagnant. The company is making losses since it was acquired by Schneider, It could be because of its expansion in Bangalore, where break even may take time.

The Indian promoters , who were just shareholders in the company to the tune of 11 % have mostly exited the company by selling the shares in open market after the declaration of delisting offer. (These could be because of capital gains or maybe Schneider have option to call shares from these previous promoters at some time at a pre - decided price to the extent of their holdings in the company.)

The current market price of APW president is Rs 205/-, which is 5% more than the Delisting indicative price. The final delisting price could be higher at 240/- and more. The company needs to buy 1.5 million shares and the company may have to shell out Rs 30 crores to 45 crores depending on book building. which is almost $5 million  to$8 million dollars for a company with sales of $ billion in India and $1.36 billion of profit globally for 2012.

The company should be ready to pay higher price for APW because

a) It is the other company listed in India apart from Schneider Electric Infra , which it got because of acquisition of Areva division. APW is small in size and it will be cumbersome to manage many companies in terms of compliance.

b) When Schneider had declared a voluntary delisting in December, the USD/INR was around 45 and now rupee has depreciated against $ by more than 20% making it easier to increase the offer price by almost 20% without increasing its offer in dollar terms.

How ever there are pitfall in this situation :

a) The Indian promoter has completed exited from the company and probably the positions are taken by people betting for delisting. The price had shot up to 255 /- and it is quoting now at Rs 205/-.

b) The company earning potentials are flat but Schneider will bring its expertise and experience to work, but in long run,

c) There is a wait of up to January 2013 for the offer to come in as this is the time up to which Schneider will have to make an offer.

It seems to be a good trading bet, with limited downside of up to Rs 195 /- with a high probability of positive surprise.

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.