VEDANTA DELISTING-- what price?

Vedanta  PA was announced today. Anil Agarwal has now climbed the conveyor belt with no stop button. RBB opens on Monday October 5 and closes Friday October 9. Deadline for counter-offer is Tuesday October 13. 

 The million dollar question is: Will the delisting be successful ?

What price?

Straight acceptance like Hexaware ? or

AA make  counter offer ?

 The biggest joker in the pack is LIC, holding 6.37% of the issued capital. Without their participation, it is highly unlikely that the delisting offer will sail through. Analysing their purchases, it appears that they may have purchased almost half their holding or 15.35 Crore shares at around Rs. 250 or thereabouts, in the quarter ending 30/6/17 (price at opening of the quarter was around Rs. 269 and closing of the quarter was around Rs. 249), it is highly unlikely that their average cost of all their purchases would be less than Rs. 175. Will they submit a bid at less than that? Merchant banker friends tell me that LIC do not offer shares below the cost . On the other hand they add some amount of interest as well at a very low rate, may be 5-6%.

 

Vedanta won an award of  $ 499 Mn against Govt of India in Supreme Court just two weeks back.  Huge impairment was taken in Q4 results based on then prevailing price of  crude oil at around $ 20, it is now $ 40. Pricing of some of its key products have corrected favourably since the delisting was announced. All these, point towards a brighter future for Vedanta and hence perhaps a greater appetite of Vedanta promoters to make the delisting successful. S&P has already stated that delisting of Vedanta will be a positive for ratings of the parent UK company making the delisting offer, another reason for Anil Agarwal not to baulk at the discovered price. 

 

Question therefore is that beyond the $ 3.15 Bn already raised (Rs. 128 per share of Vedanta), where is the money ? The only source of additional funding for the promoter company for delisting is the dividend from Vedanta Ltd, which has given dividend in FY 20 significantly below its dividend policy. Obviously, they are waiting for delisting though reason given was the pandemic. Anil Agarwal publicly labels the dividend paid on  49%+ public shareholding of Vedanta as “a leakage”.

 

HZL is readying its war chest to pay a massive dividend to Vedanta Ltd which in turn will pay a massive dividend to the UK parent post the delisting. Crisil ratings have already been obtained for 15,500 Cr of borrowing. HZL Committee of Directors last Thursday- 22.09.20, approved a Rs 5000 Cr NCD issue, including greenshoe. Together with the 20,000 Cr cash it is already sitting on, they could give a dividend of Rs 35,500 Cr from HZL. This comes to a dividend of Rs 84 per share from HZL to Vedanta. If this 35,500 Cr  dividend is supplemented by about Rs 15,000 Cr cash & existing borrowings available with Vedanta, that makes it  50,500 Cr dividend possibility. Post delisting, Vedanta may pay this as a dividend of Rs 136 per share. This would hugely supplement the firepower for the promoters to make a sweet deal for delisting, far beyond the Rs. 128 per Share that the $ 3.15 Bn indicates. The market knows this and may therefore not be willing to tender below Rs. 200. 

This delisting is of strategic importance to Mr. Agarwal's future plans for many reasons, will he let it go for Rs. 25 per share ? Or Rs. 50 per share ? This may be his only shot, he may not even make a counter-offer. We expect the delisting to be between Rs. 175 and Rs. 200 per share. But then never underestimate AA.