Saturday, March 23, 2013

Delisting of Chettinad Cement : Nicely Managed ?

These is an interesting case where discovered price in RBB was much less than prevailing price. Guess Promoters have managed the delisting very well to avoid paying higher price to retail share holders.?

Chettinad Cement is a 5 decade old cement company in South India. The Company belongs to solid and diversified group having interest in Power, Cement, Education, Logistics, Coal Terminal etc.

Chettinad Cement came out with delisting proposal in 15th May,2012 and it has concluded recently concluded its RBB(Reserve Book Building), The Floor Price of the Share in RBB was Rs 540/- and Discovered price came at Rs 720/-.

The Promoter holds 88.44 % in the company and they needs only 5.78% of the share to delist the company. Or they needed around 2.208 million shares to delist the company. Of these 4.35% is held by 2 entities or 16.61 lakhs shares were held by 2 entities, Which they are holding since very long time. We can infer that 2 non promoter entities must be having interaction with promoters. Apart from these no entity holds big chunk of shares. 

If we closely look at shareholding pattern 5.08% are held by corporate bodies and 3.25% with Financial institutions. If we look at the Shareholding pattern, Corporate bodies share holding has been increasing steadily. And it seems Financial Institution TIIL and Corporate bodies have together done bidding in RBB and seems Retails Shareholders did not had a say in RBB. 

Looking at the RBB book of Chettinad cement, we can infer that 2306882 shares were tendered up to Rs 720/- were mostly from TIIL and Corporate bodies. Not more than bids of  10000 shares were received above Rs 720 /-, Which I guess they must have been tendered by Retail Share Holders.

Looking at the RBB book of Chettinad cement, It makes me feel that Retails investors in the company are taken for a ride. The Market price after the news had shot up to Rs 1000/- and Market price on the eve of opening of RBB was Rs 920/-. Then Why would somebody bid at Rs 640 to 705 on the first day of RBB if the ruling price was above Rs 900/-?

I guess any investor if he wanted to exit from the company, he would have first sold it in open market where the price was higher by almost 30 %. There was no question of liquidity because 200 Moving average is almost Rs 825/-, which means the seller would have been able to sell it , Rs 1000 was the top but average price of Share was almost Rs 825 /- from the date of declaration of Delisting to RBB. Also More than 17,00,000 shares have been traded in the meantime and more than 10,50,000 shares were marked fro delivery. I am sure investor would have got an easy exit. And at times looking at the price of share on exchange, I always felt there was committed buyer in stock.

Also can we say that at least 50 % of the delivery volumes would have gone in strong hands, who would have taken delivery for delisting. No Investor would by at higher price when he know that there is delisting of shares. Can we Infer that strong hands who collected shares from the market offered shares at lower price in RBB at the cost of other retail Investors, who would expect premium to market price in delisting. I am sure there is a case of suppressing of price in delisting with the help of few unknown entities. Can SEBI look in the matter. These is an interesting case where discovered price in RBB was much less than prevailing price. Guess Promoters have managed the delisting very well to avoid paying higher price to retail share holders.?

These also leads me to bigger systemic issue, There are many OFS coming in market and most of the OFS of multinational companies are subscribed by a single entity at a price higher than market price. (Eg 3M came out with OFS and the floor price was Rs 3300/-  , Only one entity subscribed to whole OFS at Rs 3950/-) Can these entities be used to delist  the company after some years and at a depressed price ? I am sure retail investor will have nobody to look at except SEBI.

If we also look at valuation of the company, It was trading at 18 times of EPS of 2012, with many project in pipeline, which would increase the EPS later. We can see fall in FY12Q3 earning , but that happens in most companies which goes for delisting (The intention is to make company look less attractive) Also the company being very old must be having a good land bank and would have many assets at o value because of depreciation. The company has a book value of Rs 283/- as on Mar 2012. If we look at replacement value of these cement company, We would find it much cheaper.

Looking at the bidding pattern in Reverse Book Building of Chettinad Cement compelled to infer that delisting is managed, which SEBI should look into? Seem some strong hand had accumulated shares in market and have participated in RBB at lower price to depress the price, which otherwise the promoter would have to pay everybody.

This is not a recommendation to anybody whatsoever to buy OR sell this share, but it is my thought process and views on this topic.

I welcome your critical comments and suggestions.

PS : I don't have position in these stock.