SPECIAL SITUATION
REPORT
Regulator Mandated Minimum Public Float
CATALYST: MINORITY BUY IN (MBI)
On June 4, 2010 the Government of India announced that publicly traded companies with majority shareholders (Promoters1) holding greater than 75% are mandated to reduce their positions below 75% before June 2013. This announcement leaves Promoters with the regulator mandated decision to either “buy in” minority shareholders to own 100% of the shares outstanding, or sell down their ownership stake, or dilute, to below a 75% holding.
The process to delist requires approximately 60 days. We expect a wave of Promoters decisions beginning in the next 90-120 days, with the final wave of delisting decisions occurring in 220 days, roughly by March 2013. Opportunities continue to exist, but investors must be selective as the related universe of 153 companies offers more disappointment than returns.
We believe companies owned by well capitalized foreign Promoters offer the best probability of an MBI announcement followed by a successful completion. While the final price is not known at the beginning of an MBI, the Promoters’ are implicitly analyzing their internal rate of return to determine a delisting. To succeed, the process to secure a successful MBI requires several levels of approvals, but most importantly access to capital. Foreign Promoters all have the capacity to pursue successful MBI’s.
Regulator Mandated Minimum Public Float
CATALYST: MINORITY BUY IN (MBI)
On June 4, 2010 the Government of India announced that publicly traded companies with majority shareholders (Promoters1) holding greater than 75% are mandated to reduce their positions below 75% before June 2013. This announcement leaves Promoters with the regulator mandated decision to either “buy in” minority shareholders to own 100% of the shares outstanding, or sell down their ownership stake, or dilute, to below a 75% holding.
The process to delist requires approximately 60 days. We expect a wave of Promoters decisions beginning in the next 90-120 days, with the final wave of delisting decisions occurring in 220 days, roughly by March 2013. Opportunities continue to exist, but investors must be selective as the related universe of 153 companies offers more disappointment than returns.
We believe companies owned by well capitalized foreign Promoters offer the best probability of an MBI announcement followed by a successful completion. While the final price is not known at the beginning of an MBI, the Promoters’ are implicitly analyzing their internal rate of return to determine a delisting. To succeed, the process to secure a successful MBI requires several levels of approvals, but most importantly access to capital. Foreign Promoters all have the capacity to pursue successful MBI’s.