TTML OFS : Is Management playing fool of Investors and Market ?

Yesterday, Tata Teleservice (Maharastra) Ltd (TTML) came out with an Offer of Sale (OFS) for selling 2.72% of the company, which comes to around 5.162 Crore shares (here). 

 

The Key Points to note about the company are :

a) TTML is into providing mobile services in Maharastra and Goa. under the brand name Tata DOCOMO.

b) The Company has Negative net worth.

c)  The Company has outstanding Long term liabilities of Rs 5000 Crores, apart from negative working capital to the tune of Rs 2,000 Crores taken care by short term borrowings and payable.

d) The Market cap of the company as on 17th May, 2013 was almost Rs 1600 crores.

e) The company is making losses since many quarters, They have positive EBITDA, which is eroded completely by finance charges and Depreciation.

f) Financial Institutions merely hold 0.77 % in the company.

The Salient features of TTML OFS were :

a) The Base price of the OFS was not disclosed, It was disclosed only after the all the bids were received at various price points. They had time to submit the Base price by 2.00 pm on the day of OFS.

b) TTML took a relaxation from SEBI to reduce the cooling off period from 12 weeks to 3 days to launch another OFS, if the First OFS is not fully subscribed. I guess TTML would have taken the permission because they are aware that Financial institutions may not be interested in holding these shares and Retail Investors may have their own thought process.

c) The OFS was to be offered at multiple clearing price.

What Happened the then ?

a) OFS opened as planned and bids were collected to the 4.36 crores shares, with VWAP price of Rs 5.67. If we remove the outliers in the bids and we only consider bids up to 25% below the previous day closing price the bids were up to 50% of the book.

b) Then after the OFS was closed the sealed envelope of Base price was opened by exchanges and the BASE price was 8.90, Which was also the previous day closing price.

c) The came the circular that the OFS stands cancelled as bids received  were below the base price and also the book was not fully subscribed.

What Happened to Investors and Market ?

a) Since the Base price was to be declared after completion of OFS , people felt that there will be significant discount to market price to stocks (That is the norm in most OFS), people started applying in OFS and selling some part in cash market to book partial gains.

b) There was huge volume in the stock and as there were many sellers, there were also buyers in the stock (I am sure, apart from noise the buyers would also know that there is an OFS in the market and Base price is unknown)

c) Now with cancellation of OFS, we will find a spike in stock price and all shorts will have to cover their positions. The people who were buying of the day of OFS will make extra ordinary gains.

What are my concerns ?

a) In most of the cases the Base price of OFS is always below its current market price. but still TTML chose to price its OFS at previous day closing price.

b) The management took permission for follow on OFS, and also reducing the cooling off period. It means they had the perception that OFS would not be subscribed fully. Still they choose to price their OFS aggressively, after knowing that OFS may fail.

c) The management decided to keep the base price disclosed, if they were not ready to sell shares at a discount, but still conflicting signals were given to market about pricing. 

d) Is there a probability that the prices were hammered recently before the run up to OFS ? NO the price of these stock seems not fallen in recent past as 21 DMA 8.85 and 14 DMA was 8.72 , with the highest traded price in these financial year is Rs 9.40

e) Was the management expecting aggressive bids ? 99 % of the bids received were below the base price and Not a single shares were subscribed by any institution.

f) Who gained in these process ? Nobody except the buyers on Exchange on the day of OFS, They will have super normal profit in short run. The Tata were not able to sell their shares, Investors and liquidity providers and arbitrageur were in lurch. 

Conclusion :

a) Why would management create a secrecy around (In terms of Base Price) the OFS and then they have nothing to give.

b) The total size of OFS was only to the tune of Rs 40 Crores to Rs 45 Crores, buy still the Tata's were not able to place it with investors ?

c) Will they bring OFS again and then will the liquidity player and arbitrageur take calculated bets in TTML ? Would they not look at the OFS with suspicion ? and may expect more Risk Premium?

d) Is it an eyewash to SEBI , that We tried to place the shares but we were not able to offload it ???

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 had applied in OFS of these stock.

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.

Periodic Call Auctions for Illiquid Scrips

Do Visit my blog on gandhijigam.blogspot.in to learn more on Periodic call auctions in illiquid stocks

Should Retail Investors cheer for Jet Airways deal ?

There is noise around in the market that, Etihad Airways is buying equity stake in Jet Airways. The same news is confirmed by Aviation Minister of India. 

 

The Deal size is expected to be around $300M, suggesting a price of almost Rs 800/- per share based on current market capitalization. Etihad is expected to take 24 % stake in the company.

If promoters sells its stake, the price computed would be almost Rs 800/-, but if the deal structure is such that the money will go in the company (Jet Airways), by issuing new shares and then if we work out the price per share on expanded equity, the price arrived would be 550/-. The clarity has to emerge yet.

But let there be any outcome in terms of pricing, There will not be any open offer as Etihad Airways is only taking 24% stake in the company, which is below SEBI STAT requirement of making mandatory open offer.  

Jet Airways and the whole industry is still a cash guzzler and Jet is still loss making. A long term strategic investor may pay premium for the company but It does not command such high valuation  to make an investment call. Also there will not be open offer to support a price.

The positivity in the deal for retail investors is

a) The company may get much needed liquidity.

b) The pedigree of the company may change

c) Etihad may bring in its competency and synergies.

There doesn't seems to be a big money to be made with the declaration of the deal.

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.

Evasion or Exemption of Open Offers after violation of SEBI (SAST)

Evasion or Exemption of Open Offers after violation of Sec 10(1)(a) of SEBI (SAST)

 

Further to my post on Nippo Batteries, where i held the view that there has to be an open offer from promoters as there were violations of of Sec 10(1)(a) of SEBI (SAST) in case of Inter -se - transfer among promoters.

Today, One more deal took place on Exchange of Piramal Life at Rs 36/- between promoters. As per declaration by Sri Krishna Trust, (See here)Wherein they propose to acquire 33.08% of equity from Piramal Holdings P Ltd. As per their declaration they undertake to trade at the highest price of Rs 30.15. The trade has taken place on stock exchange at Rs 36/- and since the terms of Sec 10(1)(a) of SEBI (SAST) is not adhered, the promoters will have to make an open offer.

I hope again that SEBI takes initiatives in these blatant violation of their guidelines and compel the promoters of Piramal Life and Nippo Batteries, in the interest of minority shareholders. 

I hold on to view that there has to be an open offer, but that may not be the view shared by the company or the promoters as they have mentioned in the filings with the stock Exchange that it does not come in the ambit of open offer.

I am sure that SEBI should take side of Minority Shareholders and compel the company to make an open offer as the companies has not complied with the guidelines on SEBI takeover code required for exemption from making an open offer.

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.

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.