Anil Singhvi on Vedanta Delisting: Market Guru decodes the numbers, says it is going to be mighty tough

Vedanta Delisting: Zee Business Managing Editor Anil Singhvi explains that promoters need to hold 90% shares of the company for the delisting to be successful. Promoters already have 50% shares in the company and they need to get an additional 148 cr shares in the delisting process. 34-35% of shares are held by institutional holders. 4 key funds (LIC, ICICI Prudential Life, HDFC Mutual Fund and Citibank) are the biggest shareholders of Vedanta.

There are many questions that retail investors might have-?

1)      How many shares Vedanta needs for delisting?

2)      What all precautions one needs to take in the delisting process?

3)      Should retail investors participate in the delisting process?

4)      At what price delisting will happen?

LIC has nearly 6 to 6.5% of Vedanta shares. Anil Singhvi says it is extremely important whether LIC bids for delisting and intends to submit shares it holds. LIC will participate only if the offer is lucrative; LIC holds approximately 24 cr Vedanta shares at an average price of Rs 220-225. Since LIC is planning to come out with an IPO next year, it will definitely like to at least recover the cost price by tendering Vedanta shares, which means LIC would not like to book any loss by tendering shares at lower value. For Instance, it will be a loss-incurring deal for LIC if it sells at a price of Rs 150, it means the insurer will have to book a 1800-cr loss.

Furthermore, the Market Guru explains promoters of Vedanta have already gathered $3.1 bn (approximately Rs 23000 cr) from markets, some sources are saying they are in talks to raise additional $600 mn (Rs 4400 cr). It implies the promoter will have Rs 27,400 cr for delisting.

Additionally, at Rs 150 the cash outflow would be Rs 27,800 cr, at Rs 160 the cash outflow would be Rs 29,600 cr, at Rs 175 the cash outflow would be 32,400 cr, at Rs 200 the cash outflow would be Rs 37,100 cr, at Rs 200 the cash outflow would be Rs 41,700 cr, at Rs 250 the cash outflow would be Rs 46,300 cr.

Considering the Rs 27,400 cr that promoters hold, it seems they cannot offer more than Rs 148 – 150 per share for delisting.

Anil Singhvi says Hindustan Zinc holds Rs 25,500 Cr in cash, if this amount is distributed among shareholders, they will get approximately Rs 45 per share. Promoters will like to declare dividend after delisting, as the promoter will be holding 90% of shares, promoter will not mind if 10% amount of total dividend goes to minority shareholders. Promoters can use the dividend amount to repay loans.

Anil Singhvi believes most likely the delisting will happen in range of Rs 145 – 160. He says promoters don’t have the capacity to delist at Rs 175, Rs 200, Rs 225, and Rs 250.

Retail investors can place bids and remove till 8th October. However, after that they will not be able to make any changes if they are bidding. Counter offer will be given by the promoters on 13th October. It is necessary to cancel the bid else it will be accepted as if they agreed to the revised offer. The delisting offer is only on BSE and not on NSE.

3 key pointers for Retail Investors:

1)      Even if retail investors don’t participate in delisting, they can get the same price from the promoter anytime after the company gets delisted. Retail investors won’t get the benefit of LTCG tax if they don’t tender during delisting dates.

2)      Dividend from Hindustan Zinc could be Rs 100 – 105 per share. So, if dividend is given during the first year, retail shareholders will be getting both delisting offer and dividend.

3)      Retail Shareholders can still sell in the open market if the delisting offer fails.

Anil Singhvi believes retail shareholders should not participate in delisting and tender their shares. HNIs and Institutional shareholders will decide the fate of the company.

Also, one should avoid trading in Futures and Options market for Vedanta shares. Strict stop loss should be followed if one has positions to avoid extreme losses.

One should sell shares in the open market if delisting fails as at current valuations, Vedanta is overvalued to other peer companies. Company has debt of Rs 1.25 lakh cr, also, they have raised some amount at 13% interest rate from international market.

If delisting doesn’t happen it will be a huge loss to all stakeholders. If delisting happens, it will benefit some stakeholders while some may lose (ideally if delisting happens at a lower price than purchase price).

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Anil Singhvi believes it is extremely tough that delisting will become successful.

(Authored by Rahul Kamdar)