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