Essar Oil Delisting is Over or is It !? ~ Glitch or Golmaal !?
Yesterday at 3.30 pm was the cut off time for all shares to be tendered in the Essar Oil reverse book building on BSE & NSE
The First criteria for the delisting endeavour to be considered successfull is that at least a minimum number of 92,569,408 Shares be tendered in valid bids from the 142489858 Equity Shares being 28.54% of the public shareholding that could
At Closing 3.30 pm on Monday,December 21,2015 BSE & NSE showed aggregate cumulative bids for 101143045 shares
So then what’s the problem !?
1,98,99,305 shares from 8 bids all at Rs 262.80 are yet showing unconfirmed on the BSE Screen !
Seems there is a Glitch ! or was it a Golmaal !?….if so for what purpose ? …to derail the delisting effort !? If so ,why!?
Seems Ruias of Essar court controversy regularly….either they follow it or it like a guided missile follows them !
The 8 Unconfirmed Bids for Rs 262.80 for 1,98,99,305 shares apparently is from the LIC Holdings of Essar Oil in their various portfolios
If you remove these unconfirmed bids then the valid bids aggregate just 81243740 shares which is short of the 92,569,408 shares requisite
BSE has referred the matter to SEBI for guidance as to whether they should accept the LIC Bids as confirmed and therefore valid….if they say ‘Yes’ and that it was a genuine issue by Stockholding who were unable to upload the bid as confirmed in time by 3.30 pm for LIC then we have the Discovered Price or Exit Price of Rs 262.80 provided this price is accepted by Oil Bidco( Mauritius ) Limited the Acquirer….they can of course offer an even higher price than this to garner more shares
Essar Oil has got to be extremely anxious for delisting….in 2014 I had raised a stink when they set a floor price of just Rs 108….SEBI had to stop the effort…..however they allowed it this time around with a higher floor price of Rs 146.05….in my view they should not have until the Rosneft Deal price for acquiring 49% stake in Essar Oil which is being negotiated was announced
Essar Oil is anxious that the delisting takes place before the Rosneft deal as otherwise that would have triggered of an Open Offer by Rosneft and would have disturbed the Equity Stake Holdings by Essar Oil Promoters & Rosneft leaving Essar Oil Promoters vulnerable
Whatever ! ~ even if this delisting is allowed with LIC’s bid being accepted at Rs 262.80 the shareholders who bid below this price or the exit price to be announced by Oil Bidco will also get the Discovered Price which will now be established at a minimum of Rs 262.80. Oil Bidco can accept this Price or announce a higher one as the Exit Price .It of course can reject it and the delisting would then not have succeeded
Such a Higher Exit Price also allays fears of minority shareholders who did not participate in this delisting or who’s shares if tendered were not accepted as they were either because they were offered at a higher price than Exit Price to be announced or as on December 5,2015 the shareholder did not hold that quantity
These fears revolved around the SEBI November 2015 Order Controversy that I had raised in an earlier blogpost as to what happens to such shareholders…they would have been entitled to only the Exit Price as not the commitment to also get any incremental in the Price negotiated with Rosneft
If LIC’s Bid is disallowed by SEBI….I think it should as it should not make an exception….the Essar Oil must consider another delisting endeavour…and we now know what LIC’s mindset is on the Bid Price !
In fact think about this arbitrage opportunity that appears to be arising …..if this delisting is not successful….that if you even buy from the Market just now at this high Rs 240 (price has surged yesterday but may decline on delisting not going through),you can expect sometime in 2016 in the next delisting endeavour you will get at least Rs 262.80 or 10%….potential of more……better of course for you if you enter at price declines on delisting not going through now
What’s the Risk !?
That Essar Oil may Not consider Delisting in 2016 !? ~ Nah !
That the new Delisting Endeavour will see bids being tendered at lower prices than Rs 262.80 !? ~ Nah !
SEBI needs to make Essar Group pay more !
One more interesting observation !
Another criteria for delisting was that at least 50003 shareholders must participate in the tendering (check why in my earlier blog post)
And just 995 Demat Bids for 71187506 shares & 221 Physical Share bids for just 29250 shares have come in on BSE
While NSE the No of Bids is 1328 for lower aggregate of 29926289 shares
So Clearly,to set aside this criteria,the acquirer Oil Bidco will provide proof to BSE & NSE that all shareholders were duly informed of the Offer by speedpost or email etc
Methinks,however that SEBI will allow LIC Bid to be declared valid and therefore this delisting to be allowed at a discovered price of Rs 262.80 ~ they had allowed Essar Group to go ahead with delisting before Rosneft Price Deal has been announced
Realise too that over 4 cr shares were not offered for tender in this delisting endeavour…..they too will ,as per SEBI delisting rules,get the chance to offload later in 2016 at the Exit Price to Oil Bidco ….you can yet play arbitrage by acquiring from these shares on the markets at lower price….of course there be a tax disadvantage in that if this delisting is successful it also has STT applicable and hence tax advantage for exiting shareholders now…..if you choose to exit later in the market until the company remains listed then too STT will apply and thus too the tax advantage…but if you sell to Oil Bidco after delisting,there will be no STT applied and hence any gains will be added to your taxable income and tax as per your tax bracket will be computed
One last thought ! ~ LIC put in a bid at Rs 262.80 ~ that’s @ 88% higher than the Rs 140 it paid in 2010 ~ that’s a CAGR of just 11% over 6 years
Should we thank LIC for this high price or should they have put in a higher bid of let’s say at a CAGR of 18% over 6 years that would compute to @ Rs 380 ! ~ Essar Oil Promoters would then have to really think hard to delist at such a price & it would have created a deal disruption with Rosneft perhaps too !
But then they would have deserved this ! ~ it is widely seen how Minority Shareholders in the Essar Group have always been treated shabbily while the Controversial Ruias became US $ Billionaires on selling their Personal 33% Telecom Stake in Vodafone Essar to Vodafone in 2011 for US % 5.2 billion ~ Why had they not invest in this Telecom Stake from in the listed Essar Group Companies ? ~ They would have redeemed themselves if they had
Important Update at 12 Noon,Wednesday,December 23,2015
SEBI has cleared LIC Bid in the Delisting at Rs 262.80 as valid and so the Discovered Price will be this….Of Course,as I had pointed out earlier SEBI will yet again oblige Essar Oil Promoters and pave the way for this delisting to be successful
Market Share Price will now move up from Rs 240 levels to over Rs 250 levls & remain in and around this Discovered Price removing any meaningful arbitrage opportunity ….If it does drop to Rs 230 and below you guys know what to do ! 🙂