An Opportunistic Attempt!?
Delisting public shares from bourses is catching on as corporates are now able to raise bank credit at real negative rates. What is the fair value to be paid to minority shareholders for such delisting? Book Value, Intrinsic Value, Replacement Value? The question is as uneasy and as tricky because on one side of the table are insiders and promoter owners; on the other side are outsiders minority shareholders who have only published information to base their decision. This information asymmetry between two shareholder groups cannot be easily overcome. Therefore, the chances of minority shareholders getting shortchanged in such corporate trickery always remain high.
By Shivanand Pandit
Although delisting seems like a savor of the season, voluntary delisting is not a newfangled game. Earlier numerous marquee companies like Denso India, Chemplast Sanmar, Alfa Laval India, Nirma Ltd, Patni Computers, Binani Cements, Atlas Copco, Syngenta India, Wartsila India, Wimco, E-Serve International have resorted to delisting. Now metals and mining baron Anil Agarwal’s brainchild Vedanta Limited joins the gang. Delisting means a listed company eliminating or removing its shares from trading on a stock exchange. Generally corporate entities delist when they want to reorganize or restructure, are acquired by others or the promoters wants to increase their share. Delisting can be voluntary or involuntary decision.
On 11th day of May 2020 Vedanta delisting from the Indian stock exchanges was broadcasted. Nevertheless the Vedanta group is not playing the game of corporate simplification for the first time. Promoters played the game whenever they feel that they can reshuffle the business to relist again at superior valuation. Merger of Sterlite with Sesa in 2012 and the merger of Cairn India with Vedanta were the best examples. Moreover in 2018 Agarwal had announced strategies to delist Vedanta Resources from the London Stock Exchange and completed the buyout productively in October 2018. Vedanta Resources Limited was the first Indian company to list in London Stock Exchange in 2003 and it was 64.40 crore dollars bid. Vedanta Plc, the group parent company, also went private in 2018 amidst big hullabaloo.
On May 18, 2020 the board of Vedanta group
ratified delisting of the shares at an offer price of `87.50 per share. However, as per the delisting rules and regulations the final offer price will be fixed in harmony with the reverse book building mechanism. At the floor price of `87.50 per share, the company will have to disburse `16,218 crore to procure all (including ADR shares) of 185.3 crore shares which translates into 49.86% public shareholdings, when low oil and metal prices have already cast a tracker over the group’s fates and fortunes. Most possibly their Volcan Investments Arm will be used to execute the procurement.
Vedanta Resources Limited which owns a 36.8% stake in Vedanta Limited is of the firm opinion that the delisting will definitely boost operational and financial flexibility, as well as transform credit profile of the company. The delisting is also supposed to support a fast-tracked debt reduction program in the medium term.
The COVID-19 catastrophe is somewhat recent. But in the previous couple of years investors and financiers have been gravely knocked by dubious business practices and corporate scandals. The list of prominent and prestigious corporates who have devastated and destroyed investor wealth is lengthy. Everyone on the list has been a renowned member of our large industry associations or lobby groups. Unfortunately these associations or groups certainly have not condemned scams, deceitful deals or opportunistic activities of their members. The context for this is the news that Anil Agarwal, the scrap-dealer turned billionaire industrialist, is taking the advantage of market distress and investors’ apprehension about a threatening recession, to take his Indian company, Vedanta Limited, private.
According to the domestic institutional investors, who make up 49.48% of Vedanta’s public shareholding, the offer price is too low and not rewarding. The stock is trading close to its 52-week low and at a sheer discount to its five-year average. Minority stakeholders anticipate the offer price to be closer to the replacement value or significantly higher than the ruling price. They are of the opinion that the delisting offer is not appealing. HDFC Securities has also mentioned that investors can offer their shares at `160-180. The book value of Vedanta in September 2019 was `178.
A voluntary delisting does not happen meteorically. Stakeholders get abundant time to unload their stocks and only after the official sanctions come, the shares will be delisted. Subsequently, an exit window of one year will be made available to the residual shareholders to tender their shares at the delisting price. Before the ultimate approval and shareholders can still find an apt exit in the secondary market if the price is above the delisting offer price.
Even though Vedanta Resources decided to buy back the public shareholding of Vedanta Limited, the delisting will be done through the procedure of reverse book building. The floor per share fixed is not the concluding and sanctified price. At one time, the Board of Directors had been eager to raise the price offered in most cases and shareholders should take their time before taking a final call. Shareholders of Vedanta Limited should accept the offer if they are able to get a much healthier price. Investors have an option to either partake or not to partake. However, if company receives more than 90% in reverse book building, it can compel delisting of the company.
To conclude, undoubtedly Vedanta is looking to benefit by buying out investors at a less price and riding out the imminent downturn. It will be exciting to see if minority shareholders can efficaciously fight Vedanta’s opportunistic attempt to delist the company. Will corporate greed and opportunism win? Will anyone from its sparking Board of Directors, including past chairman of Securities and Exchange Board of India UK Sinha, show the courage to object and oppose?