The Economic Times daily newspaper is available online now.

    ‘Vedanta offer price not attractive enough’

    Synopsis

    Vedanta told the exchanges about a delisting offer at a price of Rs 87.5 per equity share.

    VedantaAgencies
    “The stock has been trading at a discount to intrinsic value of its resources and the success of the delisting would depend on the extent of this gap and the promoters’ willingness to bridge it,” said Sumangal Nevatia, analyst, Kotak Securities.
    Mumbai: The gap between the delisting offer price and expectations of Vedanta’s minority shareholders could be significant, with several analysts and an advisory firm arguing that an offer worth less than half the company’s FY19 book value may not be enough to tempt the existing investors.

    “It can be said that the offer is not serious: Why would investors lap up the offer of a company with 20 per cent-plus dividend yield at a price which is less than 50 per cent of yearly high and 45 per cent of book value (March 2019)?” asked JN Gupta, MD, Stakeholders Empowerment Services (SES). “Vedanta has hosts of businesses and Hindustan Zinc (HZL) is a listed subsidiary, and the value embedded in each share of Vedanta due to HZL itself is almost 150 per cent of the price offered.”

    Vedanta on Tuesday told the exchanges about a delisting offer at a price of Rs 87.5 per equity share. SES also said that the current trading prices are not reflective of long-term value as the country is in an uncertain state due to the ongoing Covid-19 crisis. “The intent appears to be that promoters want to take advantage of the present market condition and acquire 100 per cent of the company at current low prices,” SES said in a report.

    Total institutional holding in the company as on March 31, 2020 was 34 per cent. Major domestic institutional shareholders include LIC, ICICI Prudential, HDFC Infrastructure Fund and SBI Arbitrage Fund, each owning 6.4 per cent, 5 per cent, 2.5 per cent and 1.1 per cent, respectively.

    Vedanta Resources’ current debt is about $7 billion, with $1.9 billion maturing in the next 12-15 months. The delisting at the indicative price would cost around ₹16,500 crore. The delisting initiative underscores the promoters’ confidence in the longterm prospects of the business.

    “The delisting offer price may have to be raised going forward as minority shareholding is almost at 50 per cent and even in case if the offer is not revised, the shareholders will have a chance in the second round to give shares at a higher price,” said Vikas Jain, senior research analyst, Reliance Securities.

    The final exit offer price will be determined as the price at which shares are accepted through eligible bids during the reverse book building process that takes the shareholding of the promoter group to 90 per cent, excluding the shares which are issued against American Depository Receipts.

    In 2015, the promoters managed to convince the shareholders to approve of the Cairn India and Vedanta merger despite unfavourable merger ratio towards Cairn India, claim analysts. LIC was the largest institutional shareholder after Cairn UK, with a 10 per cent holding.

    “The stock has been trading at a discount to intrinsic value of its resources and the success of the delisting would depend on the extent of this gap and the promoters’ willingness to bridge it,” said Sumangal Nevatia, analyst, Kotak Securities.

    Vedanta has interests across several segments including oil & gas, aluminium, zinc, iron ore, copper, steel and power. The zinc business under its subsidiary HZL remains the highest cash-generating business. However, the promoters are not entirely able to use this cash to service their debt due to taxes and distribution of dividend to minority shareholders. The value per share of this business itself is ₹137 apiece. However, that doesn’t include the holding company discount and losses from other businesses.




    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more


    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
    The Economic Times

    Stories you might be interested in