MUMBAI: Investors on Dalal Street could be richer by about $2 billion if the promoters of 15 multi-national companies in which the current public holding is less than 25% decide to delist these companies from the bourses in India. Seen from the other side, in case the foreign promoters decide to dilute their stakes to below 75% in each of these 15 MNCs, the total money mobilized would be about $800 million, a study by Delhi-based Horizon Research showed.
In June 2010, the government had stipulated that by June 2012 all listed companies should have at least 25% public shareholding, which means promoters should not hold more than 75% in these companies. The rule change throws up good opportunities for investors to make money but they should be selective, the report warned.
Other than these 15 MNCs, there are another 138 Indian companies which also need to rejig their shareholding structure to meet the regulatory requirement. The report, citing a CII release, pointed out that if companies prefer to comply with this shareholding norm by diluting their stakes in the market, stocks worth about Rs 34,800 crore ($6.2 billion) would come into the market before the June 2013 deadline. In addition, if the government’s divestment target of Rs 40,000 crore is also taken into account, the figure jumps to close to about Rs 74,000 crore. Compared to this, yearly average fund raising in the Indian market over the last six years was Rs 30,800 crore — less than half the estimated amount.
The report, by Horizon’s analyst Anand Rawani, pointed out that expectations of a buyback by MNC companies and a subsequent delisting of the company usually sends the stock price skyrocketing while any plans to dilute its stake turns out to be dampener. “On an average, stock price of (15 MNC companies) appreciated by about 90% in absolute terms between June 4, 2010 and June 28, 2012. This is against a decline of 0.7% in BSE Sensex Index,” the report noted.
“The appreciation in stock price reflects the general expectation of the market that all of these companies would opt for delisting. However, this is unlikely to happen. The promoters of Fresenius Kabi Oncology, which was a candidate for voluntary delisting, chose to dilute its stake and informed the same to the stock exchange on May 30, 2012. Saint Gobain Sekurit, which made public announcement for delisting on May 21, 2012, decided not to pay more than Rs 31 per share for delisting,” it said.
It noted that these 153 companies with a public float of less than 25% are well recognized and compared to the 90% rise in MNC stocks mentioned above, the average gains in the whole universe of stocks was 12.9% since announcement in June 2010.
“The candidates’ P/B (price-to-book value) is 2.9x, have a P/E (price-to-earnings) of 32.3x and an EBITDA (earnings before interest, taxes, depreciations and amortization, or popularly gross profit) multiple of 14.2x, all well above the broad market,” Rawani wrote. “We are now in the critical final months required for a promoter decision. The binary outcome of this speculation requires highly selective due diligence to justify an investment,” the report warned.