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Vedanta Delisting: An opportunistic attempt

By Shivanand Pandit 

Although delisting seems like converse thing to do considering the trouble of becoming a stock market listed company, voluntary delisting is not unusual.

  Earlier numerous companies like Denso India, Chemplast Sanmar, Alfa Laval India, Nirma Ltd, Patni Computers, Binani Cements, Atlas Copco, Syngenta India, Wartsila India, Wimco, E-Serve International have resorted to delisting. Now metals and mining conglomerate Vedanta Limited
joins the gang.

Delisting means a listed company removing its shares from trading on a stock exchange. Generally corporate entities delist when they want to reorganize or restructure, are acquired by others or the promoters wants to increase their share. Delisting can be voluntary or involuntary decision.

On May 11 2020 Vedanta announced plans of delisting from the BSE.  In the past the Vedanta group is not played the game of corporate governance fairly. Promoters played the game whenever they feel that they can reshuffle the business to relist again at superior valuation. The merger of Sterlite with Sesa in 2012 and the merger of Cairn India with Vedanta are the best examples.

Moreover in 2018, Anil Agarwal, chairman, Vedanta Group, had announced delisting of Vedanta Resources from the London Stock Exchange. The group completed the buyout productively and in October 2018 became a privately held company amidst big hullabaloo.  Ironically Vedanta Resources Ltd was the first Indian company to list on the LSE in 2003.

Meanwhile May 18 2020, the board of Vedanta okayed the delisting of the shares at an offer price of Rs 87.5 per share. However, as per the delisting rules and regulations the final offer price will be fixed in harmony with the reverse book building mechanism. At the floor price of Rs 87.5, the company will have to disburse Rs 16,218 crore to procure all 185.3 crore shares (including ADR shares) which translates into 49.86 per cent public shareholdings. Vedanta’s 36.8 per cent equity stake is held by Vedanta Resources Ltd

Vedanta is of the firm opinion that the delisting will definitely boost operational and financial flexibility, as well as transform the credit profile of the company. The delisting is also supposed to support a fast-tracked debt reduction program in the medium term.

What next for shareholders?

The COVID-19 catastrophe is somewhat recent. But in recent investors have been taken for a ride by dubious business practices and corporate scandals. The list of prominent and prestigious companies that have devastated and destroyed investor wealth is lengthy. Everyone on the list has been a renowned member of large industry associations or lobby groups. Unfortunately these associations or groups have certainly not condemned scams, deceitful deals or opportunistic activities of their members. 

The context for this is the fact that, Anil Agarwal, a scrap-dealer turned billionaire industrialist, is taking advantage of market distress and investors apprehension about a threatening recession, to make his publicly listed company private.

 According to the domestic institutional investors, who make up 49.48 per cent of Vedanta’s public shareholding, the offer price is too low and unrewarding. The stock is trading close to its 52-week low and at a sheer discount to its five-year average. Minority stakeholders anticipate the offer price to be closer to the replacement value or significantly higher than the ruling price. They are of the opinion that the delisting offer is not appealing.  HDFC Securities has also mentioned that investors can offer their shares at Rs 160-180.The book value of Vedanta as on September 2019 was Rs 178.

A voluntary delisting does not happen rapidly. Stakeholders get abundant time to unload their stocks and only after the official sanctions come, the shares get delisted. Subsequently, an exit window of one year will be made available to the residual shareholders to tender their shares at the delisting price. Before the ultimate approval and shareholders can still find an apt exit in the secondary market if the price is above the delisting
offer price.

Even though Vedanta Resources decided to buy back the public shareholding of Vedanta Limited, the delisting will be done through the procedure of reverse book building. The floor per share fixed is not the concluding and sanctified price. At one time, the board of directors had been eager to raise the price offered in most cases and shareholders should take their time before taking a final call.

Shareholders of Vedanta have an option to either partake or not to partake. However, if company receives more than 90 per cent in reverse book building, it can compel delisting of
its shares.

To conclude, undoubtedly Vedanta is looking to benefit by buying out investors at  less price and riding out the imminent downturn. It will be interesting to see if minority shareholders can successfully fight the company’s opportunistic attempt to delist the company. Will corporate greed and opportunism win? Will anyone from its sparkling board of directors, including UK Sinha, the past chairman of Securities and Exchange Board of India, show the courage to object and oppose? We will know
soon enough.

The writer is a tax specialist, financial adviser, guest faculty and public speaker based in Goa.

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