Block Deals in United Spirits : Can it Happen ?

Et now carried an exclusive source based story that Diageo may buy up to 25 % Stake in United Spirits @ 1440 - 1450 per share. The purchase will be in terms of Preferential Allotment , Sale of treasury stocks and Sale of shares held by Promoter ( Dr Mallya and his group companies), which will be followed by open offer of another 26 %.

        

    

It went on to say that the announcement will come after 15th October and Promoters are likely to sell shares via secondary market block deals to save on Capital gains tax.

This source based news leads us to believe that shares will be sold through market and hence the price on Screen would be 1440/- and all investors would be able to sell it on screen, without waiting for open offer.

This story suffers from Practical flaw and also Technical flaw

Practical Flaw :

This story is sensational and would increase volatility and prompt investors to commit shares at lower price (CMP 1260 /- ) and sell between 1400 to 1440 keeping margin of safety. It is a good strategy buy it is not as simple as it seems.

Let us first understand, what is block deal ? Block deal is an order matching system, where trade takes place in stock Exchange but not on normal market segment. Block deals are done to enable buyers to sell stock only to specified seller and to match exact quantity. This is to avoid for slippages in quantity of stocks in open market.

But there are are rules and guidelines to be followed while executing the block trades

a) The trade value should not be less than Rs 5 Crores

or

b) The trade quantity should not be less than 5,00,000 shares

 and 

The trade can take place between +/- 1% of Closing Price or Prevailing Price.

http://www.sebi.gov.in/circulars/2005/mrdcir0192005.html

Based on this rationale United Spirits should trade at not less that 1427 /- for the block trade to take place.  Investors would prefer selling shares below 1427 rather than wait for open offer, which means practically, it would be difficult for market trade of Dr Mallya to take place without buying shares from individual shareholder.

Technical Aspect :

If at all, the deal is signed between Diageo and United Spirits, Diageo cannot but the shares the next day .

The deal will first go through the red tape i.e it will have to take permission from CCI, FIPB, SEBI (There can be some more) . Dr Mallya have to take approvals from Boards, Shareholder and then only the shares can be bought by Diageo.

Do you think all approvals can come overnight ?? It will take months ......

And so it would be best to describe Et Now source based information as gossip............. please beware.

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.

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.

http://beta.bseindia.com/corporates/anndet.aspx?newsid=1fd72d14-8b00-45d8-a579-b7cba64c5985

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. 

http://www.bseindia.com/stockinfo/anndet.aspx?newsid=ff562444-6875-4776-b544-ead228afd95c&param1=1

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.

http://www.bseindia.com/stockinfo/anndet.aspx?newsid=5c5f118b-97b7-44f1-841a-bc0c27d4435f&param1=1

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.

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.

 

http://beta.bseindia.com/markets/MarketInfo/DispNoticesNCirculars.aspx?page=20060418-14&pagecont=0,17/04/2006,20/04/2006,,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.

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.

Can we buy Indiuabulls Power and Infrastructure (IBIPL)

IBIPL is a demerged entity from Indiabulls Realty (IBREL). IBIPL now happens to be the promoter of Indiabulls Power (IBPOW).

IBIPL was demerged from IBREL to unlock the value of its holdings in IBPOW., It issued 2.95 shares of IBIPL for every 1 shares of IBREL. The capital of IBIPL is 127 crores shares. also IBIPL holds 118 crore shares in IBPOW. 

Effectively each IBIPL share holder holds 1 shares of IBPOW. The price of IBIPL is Rs 5/- and Price of IBPOW is Rs 13/-. effectively If i buy shares of IBIPL , I will get shares of IBPOW at Rs 5/-. As Promoters have demerged the holdings in IBPOW in different company to create shareholder value, it can only be done if IBIPL goes for merger with IBPOW, where each shareholder would get 1 share of IBPOW. (This is synonym to demerger done by Reliance Industires for Reliance capital, RNRL and Reliance Energy)

The shares of IBIPL is availiable at price of a holding company (Discounting of almost 50%), but there is high probability of merger of  IBIPL with IBPOW, leading to jump in valuation.

Also IBPOW is availiable cheap compared to its historical price and issue price of Rs 35/-, where LNM and Falloran have stakes. 

There are pitfalls in the trade, fiirst is the merger may not take place in near future leading to long holding period. Also Power sector in India is struggling and Promoters do not have experience in executing power projects.

Also there are huge buyers on the counter leading to non - availibility of shares, there are huge volumes on the counter leading us to believe that early buyers in the morning have high probability of trades getting executed.

It seems to be a good trading bet, with stock available at value of holding company and value unlocking may take place in future.

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.