At the outset I would have expected SEBI to come out with some amendment in the process of Reverse book building rather than scrap it. The Reverse Book Building process is a good concept and passes the test of ‘equity’. It should be adopted with some modifications.
I find the following observation of SEBI, not acceptable.
a) In the preamble of the proposed change it is written in 2(a) “Disproportionate Powers with public share holders holding major chunk” this is not correct because the powers are directly in proportion to number of shares held, if this is changed then the process of equity & natural justice would be negated. My suggestion seeks to take care of the situations that might have prompted this statement.
b) In clause 2(b) it is stated “Possibility of frivolous Bids to destabilize the delisting offer” It is not correct to label bids as frivolous. No bids can be frivolous since they are backed by actual amount invested.
It seems that SEBI by the proposed Regulation, is favouring delisting of more cos. Which should not be the case. At various places suggestions have been made to take care that listing is encouraged.
PRICING MECHANISM
It was seen in the past in some cases that due to some large investors the entire process of delisting failed. Although , I do not want to take away from such large shareholders, their right to bid at a price they think fit, but I would like to give an opportunity to the other small share holders and the promoters as well to proceed ahead with what they think is fair price. The pricing mechanism should be altered to as follows:
a) The minimum exit price should be at 25% premium to the floor price, as suggested in the present draft.
b) The price discovery as per the present guideline on Reverse Book Building that gives the rate at which maximum no. of shares are offered
c) The rate at which maximum no. of shareholders have offered the shares. This will take care of a few shareholders holding major chunk and unduly flexing their muscles.
In case the highest discovered price is not acceptable to the promoter, they may indicate the price acceptable to them which could be either of a),b) or c) above.
The shareholders will have the choice to either accept or reject such price offered by the promoters.
ABSENCE OF MINIMUM SUBSCRIPTION
In the present circumstances & even in the draft, the offer fails if a minimum threshold is not reached. It must be appreciated the whole exercise is quite cumbersome & costly. The promoters & the investors both must be given an option to accept shares tendered even when the minimum threshold is not reached and the company does not become eligible for delisting. Might be the offer should be named “ Open offer with delisting option”
Since in any case the promoters are following the guideline given under SAST for consolidation of their holding.
However in such a case, it should be made a condition that after such offer and acceptance, in case the promoters come again with another delisting offer or purchases shares at a higher price within a period of 3 years, then, such higher price should be paid to the shareholders who had earlier accepted the offer at a lower price.
COMMENTS ON VARIOUS OTHER CLAUSES OF THE DRAFT
a) Clause 4(5) doesn’t permit delisting of convertible securities. This should be omitted.
b) Clause 10(1) Public announcement is directed to be issued in one English and one Hindi, national dailies & one regional language news paper of the region where the concerned stock exchanges are located.
This should be changed to regional language newspaper of the place where the registered office of the company is situated or the place where there is highest concentration of individual shareholders.
This is on the premises that the stock exchanges are located in metro cities & the investors living there are by & large much better educated & informed as compared to some rural areas where the factory of the company may be situated and workers etc. may be holding a significant chunk of shares.
c) Clause (6) Term associate should be defined .
d) Clause 12(1) The responsibility for dispatch of letter of offer has been cast on the promoters only whereas the responsibility for public announcement (refer clause 10(5) ) has been cast on promoters & merchant bankers jointly. Uniformity must be maintained at both the places and merchant banker should be added at 12(1).
e) Clause 14(4) (b) states that fair value of the securities should be determined by registered Credit Rating Agency, whereas clause 21(1) states that stock exchange shall appoint independent valuer. The term valuer has been defined to mean a Chartered Accountant or Merchant Banker.
Uniformity should be maintained throughout the regulation & the term valuer should be replaced at 14(4) (b) instead of Credit Rating Agency and explanation to 21(1) (a) defining the word valuer should be modified to include, Chartered Accountant, Merchant Banker or Credit Rating Agency.
f) Clause 24(1) debars for a period of seven years any delisted securities from relisting. Seven years period is too long and serves no purpose. This should be reduced to three years . Or alternatively one year with a rider that in case of any relisting proposal, within the next 3 years, the earlier shareholders must be given the opportunity to participate in the same manner as ‘Rights issue’
Hope the above suggestions will find merit and duly incorporated in the proposed Regulations.
Thursday, March 22, 2007
Allsec Technologies Ltd.
In the mandatory annoucement the acquirers announced that Open offer of Allsec Technologies Ltd. received a response of 2.77% as against the Offer of 20%. This was because of the market price being higher than the offer price.
This is not an isolated case and there are many such issues where the Offer Price were lower than the Market price and yet they have managed to receive couple of lacs shares.
Why would someone surrender shares at a price lower than Market Price? Specially when surrender is distinctly disadvantageous as compared to selling in the market because
(a) Payment is delayed
(b) Uncertainty as to the no. of shares that will be accepted
(c) Price risk at the time of receipt back of unaccepted shares
(d) loss of tax benefit because STT is not paid.
This could be another scam and needs to be investigated properly, not only for Allsec Technologies Ltd. but for all such cases.
This is not an isolated case and there are many such issues where the Offer Price were lower than the Market price and yet they have managed to receive couple of lacs shares.
Why would someone surrender shares at a price lower than Market Price? Specially when surrender is distinctly disadvantageous as compared to selling in the market because
(a) Payment is delayed
(b) Uncertainty as to the no. of shares that will be accepted
(c) Price risk at the time of receipt back of unaccepted shares
(d) loss of tax benefit because STT is not paid.
This could be another scam and needs to be investigated properly, not only for Allsec Technologies Ltd. but for all such cases.
Punjab Tractors Ltd
The recent take over of Punjab Tractors (PTL) which necessitated the open offers for other cos. E.g. Swaraj Automotives and Swaraj Engines. But no open offer for Swaraj Mazda. It should be examined if Open offer for Swaraj Mazda also should have come. Say if PTL is holding 20% ( the actual figure reported is 14%) in Swaraj Mazda and M & M has acquired 60% in PTL then M & M is supposed to have acquired 20% in Swaraj Mazda or 60% of 20% i.e. 12%. More over was PTL controlling Swaraj Mazda? If yes than will it mean Swaraj Mazda will now be controlled by M &M or continue to be controlled by PTL who might be now controlled by M & M?
Devaki Hospital
In the current open offer of Devaki Hospital Ltd. the price offered is Rs. 19/-, but if you look at the 26 weeks data, you will find that there have been abnormally high volume in the weeks ending 5th , 12th , 19th & 26th May 2006, on 19th May 2006 the volume of shares was 27,83,932 lacs at a rate as high as Rs. 32.90 and low of Rs. 29.10 as against average volume of about 50,000 shares per week at an average rate of around of Rs. 15-16.
This raises doubt in the mind that this heavy transaction in the above 4 weeks and subsequently in the week ending 8September’06, just before the take over, must have been undertaken by the interested parties—The Acquirers / PAC. The Acquirers have disclosed a block deal of only 5.30 lacs on 8th September’06 out of a total volume of more than 15.5 lacs shares on that date.SEBI should investigate and establish whether these shares were bought by the acquirer /PAC directly or indirectly and if so than the highest rate of Rs. 32.90 should be paid to all as per the regulations. It should be checked where the shares bought in the month of May’06 are lying as on date.
This raises doubt in the mind that this heavy transaction in the above 4 weeks and subsequently in the week ending 8September’06, just before the take over, must have been undertaken by the interested parties—The Acquirers / PAC. The Acquirers have disclosed a block deal of only 5.30 lacs on 8th September’06 out of a total volume of more than 15.5 lacs shares on that date.SEBI should investigate and establish whether these shares were bought by the acquirer /PAC directly or indirectly and if so than the highest rate of Rs. 32.90 should be paid to all as per the regulations. It should be checked where the shares bought in the month of May’06 are lying as on date.
Update on Mysore Cement
•In the mean time the Acquirers have completed the formalities of Open offer and as was apprehended got very poor response. Instead of the offer size of 35 Crores Shares only 0.68 Crore shares were tendered. Now even if they lose out they will be making off with approx Rs.40 crores of investors’ money.
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