Many have lost money as stock prices of several potential delisting candidates have fallen after they decided to continue on the bourses. Nikhil Walavalkar weighs the options
Many
investors were charmed by the MNC theme last year. They were chasing
shares of multinational companies with promoter holding of more than
75%. The rationale was simple — these companies would delist before June
2013 to adhere to the norm of at least 25% public holding for private
companies listed on stock exchanges. And while delisting, minority
investors were expected to get a golden handshake.
But this simple investing theme hasn’t actually played according to the script. Companies such as Disa India, Honeywell Automation, Blue Dart Express have opted to reduce the promoter holding instead of delisting the shares. The delisting offer of Ricoh India has failed. No wonder, the stock prices of most of these MNCs have corrected from their one-year highs as investors queued up for a quick exit. Investors in stocks such as AstraZeneca Pharma India, 3M India, Timken India are guessing if the delisting will ever happen.
“Investors were banking on delisting and companies opted to reduce promoter shareholding which was a shock for many,” says Vijay Kedia, managing director of Kedia Securities. “You have to look at each of the delisting bets separately and decide accordingly,” he adds.
MORE PUBLIC SHAREHOLDING For the uninitiated, it all started with the ministry of finance directing private sector listed companies to ensure 25% public holding and public sector companies to ensure 10% public shareholding. The deadline for the implementation of the norm was June 2013. Companies had two options. First, to come out with a delisting offer and corner the adequate number of shares through reverse book building process and delist their shares from the exchanges. The second option was that the promoter should sell his holding or issue additional shares to non-promoter entities and bring down the promoter holding to 75% of total shares of the company.
Most market participants were expecting the financially strong companies, especially the multinationals — to take the first option. In that hope, investors bought into these stocks to push up the prices in an otherwise range-bound market. (The adjoining table shows the price rise in last one year.)
REDUCING PROMOTER HOLDINGS But now the prices are on the way down for many such shares. Blue Dart Express, Honeywell Automation, Disa India and Fresenius Kabi Oncology have opted to reduce the promoter shareholding by offer for sale — a mechanism where in the promoter offloads some of his stake using the stock exchange route. More important is, the floor price fixed for offer for sale by these companies were below the prevailing market price. The floor price for Disa India offer for sale was at . 1,500 while the stock was quoting above . 2,700. In case of Blue Dart Express, the offer price was at . 1,720 against the market price of . 2,000.
“Multi national parents are not willing to pay through their nose to delist their subsidiaries. Naturally the greed is replaced by fear and hence we have seen the stock prices correcting,” says a fund manager. A case in point is that the share price of Honeywell Automation correcting 20% on the day it announced its intention to reduce promoter shareholding. Failure of Ricoh India delisting is another one. The stock corrected from a high of . 91 to . 50 in two weeks.
Investors have started doubting the delisting theme and many of those who are already invested and have been watching the prices coming down are now clueless about the future.
GOING AHEAD There is no point in summarily discarding this investment theme, feel some experts. “There are several companies with high promoter holding and a financially strong parent entity. Some such companies may opt for delisting as the same would result in more operational flexibility,” says Dipen Shah, head of PCG research at Kotak Securities. Many market participants subscribe to his views. AstraZeneca Pharma India, Kennametal India, 3M India, Gillette India, Oracle Financial Services Software are some such stocks that savvy investors are still looking at for a possible delisting. Of course, there is no guarantee that these companies would delist.
“Prices of most of these delisting candidates are already quoting at very high levels and there is not enough margin of safety. If you have bought into a stock at the lower level and it is a small component of your portfolio, you may choose to hold on to it where delisting expectations are still alive,” says Chetan Parikh, director, Jeetay Investments. Any new entry at this level however must be carefully examined in the light of business prospects and prevailing valuations, he adds. The decision becomes difficult if you are looking at companies where the offer for sale is already announced. “Some companies have wonderful underlying businesses and you can buy into them as stock prices tank in the short term,” says Vijay Kedia. He prefers Blue Dart Express and Honeywell Automation among such companies. As companies opt to reduce promoter shareholding, investors are given a message that the company should remain listed for at least two to three years. “Institutional investors prefer listed shares if they have great underlying businesses. In the medium-term, institutional demand should push up the stock prices,” says the fund manager.
However, the recent failure of Ricoh India has left investors guessing. Many are still hopeful that there should be another delisting attempt at higher price in the short term. But such hopes may not fructify. “If you have entered a special situation such as delisting and it does not materialise, it is better to exit and take the losses,” says Chetan Parikh. However, there is another angle, too. There are investors who keep aside the delisting trigger and are keen to look at the business with a long-term view. “Ricoh India looks good for the long term as business is expected to grow thrice in next five years,” says Abhishek Jain, head of research at JHP Securities.
But this simple investing theme hasn’t actually played according to the script. Companies such as Disa India, Honeywell Automation, Blue Dart Express have opted to reduce the promoter holding instead of delisting the shares. The delisting offer of Ricoh India has failed. No wonder, the stock prices of most of these MNCs have corrected from their one-year highs as investors queued up for a quick exit. Investors in stocks such as AstraZeneca Pharma India, 3M India, Timken India are guessing if the delisting will ever happen.
“Investors were banking on delisting and companies opted to reduce promoter shareholding which was a shock for many,” says Vijay Kedia, managing director of Kedia Securities. “You have to look at each of the delisting bets separately and decide accordingly,” he adds.
MORE PUBLIC SHAREHOLDING For the uninitiated, it all started with the ministry of finance directing private sector listed companies to ensure 25% public holding and public sector companies to ensure 10% public shareholding. The deadline for the implementation of the norm was June 2013. Companies had two options. First, to come out with a delisting offer and corner the adequate number of shares through reverse book building process and delist their shares from the exchanges. The second option was that the promoter should sell his holding or issue additional shares to non-promoter entities and bring down the promoter holding to 75% of total shares of the company.
Most market participants were expecting the financially strong companies, especially the multinationals — to take the first option. In that hope, investors bought into these stocks to push up the prices in an otherwise range-bound market. (The adjoining table shows the price rise in last one year.)
REDUCING PROMOTER HOLDINGS But now the prices are on the way down for many such shares. Blue Dart Express, Honeywell Automation, Disa India and Fresenius Kabi Oncology have opted to reduce the promoter shareholding by offer for sale — a mechanism where in the promoter offloads some of his stake using the stock exchange route. More important is, the floor price fixed for offer for sale by these companies were below the prevailing market price. The floor price for Disa India offer for sale was at . 1,500 while the stock was quoting above . 2,700. In case of Blue Dart Express, the offer price was at . 1,720 against the market price of . 2,000.
“Multi national parents are not willing to pay through their nose to delist their subsidiaries. Naturally the greed is replaced by fear and hence we have seen the stock prices correcting,” says a fund manager. A case in point is that the share price of Honeywell Automation correcting 20% on the day it announced its intention to reduce promoter shareholding. Failure of Ricoh India delisting is another one. The stock corrected from a high of . 91 to . 50 in two weeks.
Investors have started doubting the delisting theme and many of those who are already invested and have been watching the prices coming down are now clueless about the future.
GOING AHEAD There is no point in summarily discarding this investment theme, feel some experts. “There are several companies with high promoter holding and a financially strong parent entity. Some such companies may opt for delisting as the same would result in more operational flexibility,” says Dipen Shah, head of PCG research at Kotak Securities. Many market participants subscribe to his views. AstraZeneca Pharma India, Kennametal India, 3M India, Gillette India, Oracle Financial Services Software are some such stocks that savvy investors are still looking at for a possible delisting. Of course, there is no guarantee that these companies would delist.
“Prices of most of these delisting candidates are already quoting at very high levels and there is not enough margin of safety. If you have bought into a stock at the lower level and it is a small component of your portfolio, you may choose to hold on to it where delisting expectations are still alive,” says Chetan Parikh, director, Jeetay Investments. Any new entry at this level however must be carefully examined in the light of business prospects and prevailing valuations, he adds. The decision becomes difficult if you are looking at companies where the offer for sale is already announced. “Some companies have wonderful underlying businesses and you can buy into them as stock prices tank in the short term,” says Vijay Kedia. He prefers Blue Dart Express and Honeywell Automation among such companies. As companies opt to reduce promoter shareholding, investors are given a message that the company should remain listed for at least two to three years. “Institutional investors prefer listed shares if they have great underlying businesses. In the medium-term, institutional demand should push up the stock prices,” says the fund manager.
However, the recent failure of Ricoh India has left investors guessing. Many are still hopeful that there should be another delisting attempt at higher price in the short term. But such hopes may not fructify. “If you have entered a special situation such as delisting and it does not materialise, it is better to exit and take the losses,” says Chetan Parikh. However, there is another angle, too. There are investors who keep aside the delisting trigger and are keen to look at the business with a long-term view. “Ricoh India looks good for the long term as business is expected to grow thrice in next five years,” says Abhishek Jain, head of research at JHP Securities.
Source: by Nikhil Walavalkar The Economic Times 26/11/2012
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