Friday, October 2, 2015

Updates on Special Situation in India Cement and some opprtunites.

Further to my Blog on Special Situation in India Cement  (Here),

India Cement had declared a record date for issuing a free shares of Chennai Super Kings Team (CSK). The discussion was on weather Corporate benefit will be given for Position in India Cement in Derivatives Segment. 

Now on Informal Interaction with NSE Office bearers, They said " There will be no corporate benefit in Derivatives segment for India Cement Free Shares of CSK, Nor will there be any formal circular for this. "

From above we can Infer that

a) No Corporate benefit will be given in Derivatives segment.

b) Since no circular or clarification is coming, We can infer that Exchange also wont close any position on the eve of Ex-dates.

c) So Traders holding position in India Cement Futures or Options will not get nor will have to give benefit of Free Shares.

d) The decision of NSE to not give corporate benefits could be based on premise,  that the de-merger is not solemnised by SEBI or any Court of Law, but it is based on Advise by lawyers.

Will this Special Situation give rise to any arb opportunity ? YES

If I buy shares of India cement before the Ex-date of free shares and sell its futures, I will block my cost and sell price of shares. But I will also get benefit of Free shares. Currently The cost of doing such transaction is Rs 0.40 ps (as futures price is quoting at discount) + Transaction cost (Brokerages + STT + DP charges + other charges.). Also we can count Interest cost for holding the shares.


Before the Ex - Date.

Buy 4000 shares of India Cement @ 82.90 and 
Sell 4000 share of India Cement October futures @ 82.50

After the Ex - Date on Expiration Day.

Run VWAP and

Sell 4000 shares of India Cement and 
Buy 4000 share of India Cement October futures
The price of Cash an FO will converge on that day.

Total cost will be 0.40 Ps loss + Brokerages + STT + DP charges + Other Charges = Approx Rs 1.00 per share.

So my effective cost for acquiring a share of CSK would be Rs 1 /-.

What should be the price of CSK Team ?

Media reports in the past suggested range of $200 mil  to $500 mil. I cant predict the price of CSK, As it is banned for 2 years, Also lack of transparency in Free shares of CSK.

But We can infer that the amount of discounting of India cement futures would be the value of  India Cement.

So if the the Discount of 0.40 ps becomes more steeper, then the value of CSK will go up.

Is there more Pitfall in this trade ? Maybe

a) The free shares are given by the company based on advise by lawyers and not under Scheme of arrangement of Companies act . So there remains a probability of it being challenged in court.

b) SEBI can also ask for clarification from India Cement.

c) It will take long time to get the shares of CSK to be credited in demat account, as After record date, CSK team shares will be transferred in a trust and then trust will distribute the shares.

d) After reading the letter for record date sent by company to exchanges, It gives us the impression that the record date is only from non - Promoters and Promoters and their relatives may be out because of their perceived taintedness in IPL match  - Fixing scandal.(Here)

But that is not true, Promoters will hold shares in  another trust created for the benefit of ICL Ex - Cricketers , So They will be trustees in CSK and will run the company. That's positive as they will have bigger skin in this game. (Read Notes Here)

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

I welcome your critical comments and suggestions.

PS : I have some position in the stock, So I can be Biased


Tuesday, September 29, 2015

Special Situation in India Cement

India Cement (ICL) is a cement manufacturer based in South India. It is also the owner of Cricket Team " Chennai Super Kings" in IPL (India Premier League ) Format.

The India Cements Limited

On 24th, Sep 2015. The company had a board meeting where they announced distribution of Free shares of Chennai Super Kings Cricket Limited (CSK). Here, Here.

The Salient features of the distribution are

a) The shares will be allotted to all non-promoter shareholders of India Cements in the ration of 1 : 1.

b) The distribution of shares does not come under the scheme of arrangement of Companies Act or SEBI Act, as CSK team is held in a trust, of which ICL is not a part. 

c) The company CSK may be listed in future, for which ICL cannot comment as decision to list will be taken by board of Trustees of CSK Trust. However the shareholders can transfer / sell in off market mode.

d) Shareholder in ICL can now own 2 different companies (Cement and Sports ) respectively.

e) ICL has fixed a record date of 09/10/2015 for such distribution.

f) CSK is banned by supreme court to play for 2 years.

g) Promoters share of shares in CSK will be transferred to another  trust, which will work for the benefit of Ex - Cricketer of ICL.

What we can Infer from above is, The share holders of ICL will get free shares of CSK. but there are some unknown in this distribution :

a) We don't know who all others are share holders in CSK trust (They claim as India Cement Ex - Cricketer Trust), What is their share ? Is it same as promoters shareholdings?

b) When and Will the shares be listed ?

c) What is the value of CSK ? ( Apart from Brand, What do they own and Owe) ? Who will bear the litigation cost with BCCI ? Where will trust get funds for day to day working of CSK. ? How many cricketers are retained by CSK ? What about the Sponsors of Team ? What about its Advertisers and Marketers?

Based on above unavailable details, it will be difficult to value CSK.

Thus I will infer CSK shares as Deep Out of the money long term Options, Which may become give good returns in future as It still enjoys the brand and IPL ownership is there.

But what about adjustments in Derivatives segment of NSE.

a) Normally Corporate adjustment takes place in any scheme of arrangement, involving issue of new shares of different company.

In such adjustments all contracts are closed of the company before the Ex-date and new contracts are issued after the Ex - Date of such de-mergers.

Most probably, such corporate action will take place in ICL also, before 09/10/2015.

Investors should also know there there is a big open Interest of almost 2.25 crore shares in derivative segment, which will have to be closed then.

b) But there is a slight probability that NSE may take a different view on adjustment of ICL, as Such distribution is without approval of SEBI or any Competent court.

In such case NSE may not allow any adjustment for Corporate Action and No contracts will be closed. Then it may happen that Futures price of ICL may quote at discount to cash market, and The difference may be the expected price of CSK shares.

I believe there is a low probability to this.

c) Also I wonder, If SEBI enters the pitch and ask for more details about the free gift shares and may request the company to postpone the Ex - Date. SEBI can do that as ICL is under the ambit of SEBI.

Also some Investors or other stake holders may go to court to get clarity of such transfer.

I am sure there is lack of transparency in valuation CSK shares, also It does not have the graces of SEBI or Competent courts. I will take utter caution while dealing with this special situation.

Since My thought process is only about distribution of Free Shares, Here I  have not considered any valuation of ICL cement or any of its other business.

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

I welcome your critical comments and suggestions.

PS : I have some position in the stock, So I can be Biased