IPP OR DELISTING ?

By Ruma Dubey

4th June 2013. This is the deadline before which companies in India Inc, essentially the private sector, have to reduce their stake to below 75%. And very soon, in the ensuing months, obviously subject to the market remaining stable, we may see many companies making moves to either delist of pare their stakes to below 75%.

Companies who do not want to take the risk of reducing their stake or want to take this opportunity to make an exit, will opt for delisting. This, as most of are now more than familiar with is done at an exit price and it is always hoped that this exit price will be at a much higher premium to the quoted price. Delisting has today become a buzzword to get momentum in stocks, where even a slight hush-hush whisper of a delisting move to push the share price to the stratosphere.

Then there are the other companies where promoters have a stake which is above 75% but yet do not want to delist. Private placement, preferential allotment, offer for sale or like the way Godrej Properties recently did – institutional placement, which helped the company bring down the debt as well as reduce promoter holding in the company to below 75% from the current 83.79% in compliance with SEBI norms.

Last month, SEBI had announced norms for Institutional Placement Programme (IPP) which allowed promoters to either sell up to 10% of their capital via auction to institutional investors or issue fresh equity shares. IPP will be the preferred route where promoters hold less than 85% but where the stake is more than 85%, promoters will have to look for the other modes.

Take a look at some of the companies where promoters stake is more than 85%(does not include PSUs) 

There are many companies which might opt for delisting but those will in all likelihood be MNCs. Suashish Diamonds is not a MNC but it is sure to go for delisting. Promoters’ stake in the company currently stands at 89.43%. The company had contemplated delisting in Oct 2009 but it did not go through after Ashish Goenka, the promoter and acquirer decided not to accept the discovered price (being the price at which the maximum number of shares was tendered) of Rs.320 per share established by the book building process on the BSE. Kennametal was historic in the sense that its promoters sought delisting but the shareholders rejected the company's share buyback proposal, underscoring growing shareholder activism in the country. The company planned to acquire the shares through purchase of 11.84% public stake. BOC and Goodyear India, did not tender the required number of shares in the respective open offers, while promoters of Bosch Chasis did not accept the price discovered through the reverse book-building system. AstraZeneca too is another such case waiting to happen. Though it has refuted delisting plans, with 90% promoters stake it is bound to happen soon. Expectations are of a price of Rs.3200/share.

All in all, the coming months could see a lot of action, either stake dilution or delisting but it is sure to keep the trades busy.