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VEDANTA DELISTING - Let's not stymie it.-follow up 06.06.20
Vedanta has declared the results
today with a loss of Rs.12,083 Crs. This loss is not an Operational loss but an
optional loss. The company has decided to take a hit of Rs. 17,132 Crs.in this
quarter as impairment in its oil assets.
As a shareholder of the company, I
should be very upset at such a bad result but I am not. I am no longer a long
term investor in the company. My immediate focus is DELISTING. The first
question that comes to mind is why such a huge exceptional write down just
before the big event of delisting? It seems that all these actions are supposed
to lead the delisting offer to success. Puzzled? Let me explain.
Assuming the success of the Postal
Ballot, the delisting offer is now headed for Reverse Book Building (RBB). The
discovered price in the RBB is the price at which the Acquirer/Promoter can
delist the shares. How this price is discovered? The price at which the cut-off
level is reached, i.e. the price at which the promoter’s holding is able to
reach the 90% level, is the discovered price.
Had the results been very good, no doubt people’s expectation would have
gone up and the RBB price would have shot
up. With such a bad result people would be willing to dump their shares. In
fact if there was no overhang of Delisting offer, there would have been heavy
selling on next trading day, i.e. Monday
08.06.2020 bringing down the price of the shares. As against this, if I
am able to correctly understand the price movement on Friday (05.06.20) with
heavy volume and scheme of things to
come, on Monday the prices will shoot up because with this kind of heavy write
down, the success of the delisting offer is
ensured. How?
1.
At the first place the RBB itself
will be lower and more reasonable and at an acceptable level for the promoters.
Before such a bad result the, the prices of Vedanta shares were hovering in the
region of 60-80, if there was no delisting, you can bet, the price would have
slipped further. It is now in the interest of the shareholders to pray for the
success of the delisting. Be reasonable. A 50% premium to the indicative price
will mean a price around 125-135. This should be acceptable to the acquirer.
2.
Secondly, recall what happened in the case of LINDE India(January 2019)? The
discovered price was Rs.2,000/- as against the market price of about 700, the
acquirers called–off the delisting. It seems that the promoters of Vedanta are
preparing themselves for such an eventuality. By taking such a huge
impairment/loss they are reducing the book value. As per Regulation 16(1A) of
the Delisting regulations, the promoters are now allowed to give a counter
offer but such counter offer cannot be lower than the Book- Value. On a rough
calculation, the book value is coming to around 148.
Thus my guess is that the delisting
offer can fetch you a price of around 125 or a maximum of Rs.150.
6th June 2020
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