Delisting buzz spurs MNC stock prices

Share prices of listed multinational companies (MNCs), with a public shareholding of less than 25%, surged on Monday with the Street speculating that foreign firms would opt to delist their shares rather than take up the float to 25%.

Barring two companies, all MNC stocks were big gainers, rising 6% on an average, even as the benchmark indices lost 2%. “Foreign promoters will pay healthy valuations if they have to exit and that’s why MNC stocks rallied,” said Jagannadham Thunuguntla, equity head, SMC Capital. There are about 23 MNCs listed on the Indian bourses which have promoter holding of greater than 75%.

However, even as MNCs gained handsomely, the public shareholding norm seems to have negatively impacted public sector undertakings. Stocks such as MMTC, NMDC, Hindustan Copper and SAIL, which will have to offload the maximum to hike their public shareholding to 25%, declined close to 4% each. All these stocks have very low public float and hence are trading at a relatively premium. Also, private sector companies like DLF crashed 6%. Tata Motors fell 4% while Reliance Power lost 2%.

The government on Friday made it mandatory for all listed companies to have a minimum 25% public holding. Listed companies with less than 25% public holding will be required to reach the stipulated level by enhancing their public holding by a minimum 5% every year. MNCs such as INEOS ABS (India) and Fairfield Atlas, both with over 83% promoter holding, gained 14% on Monday’s trade. Astrazeneca Pharma, BOC India and Gillette India, with promoter holding of close to 90%, gained over 6% each.

Some market experts, however, feel companies may gain as the higher float would attract new funds.

“If the free float increases, funds won’t mind buying the stocks because they would become more liquid,” explained Deven Choksey, managing director at KR Choksey Securities. “Further, PSUs don’t need a government nod each time they have to divest, they can sell shares whenever they wish.”

There are mixed opinions on whether the market can absorb such a large quantity of paper, estimated at Rs 58,000 crore over the next 12 months. "The high levels of capital raising are likely to be a drag on the secondary markets. With incremental flows strongly dependent on the global situation, there could be few takers for the supply, which is 33% higher than in 2009," said a note by Religare Capital Markets. Experts also said the new norms could dissuade companies wanting to list and crimp the valuation of mid- and small-cap firms.

The government's disinvestment plan could also be hit. "Investor preference for incremental offering in listed entities would tend to hold back planned new listings. Further, certainty of this capital on offer in many large-caps would tend to be a drag on their valuations, while holding back incremental investments into mid-caps," it said. These public offers from listed companies are seen as reducing the appetite for new offers.

Large issuances in the private sector (35 in all in the BSE500) are expected in IT Services (Wipro, Oracle Fin), real estate (DLF), utilities (Reliance Power, JSW Energy) and capital goods (Mundra Port). The new norm could force companies to raise as much as $60 billion by selling stakes over the next few years, according to an estimate by Prithvi Haldea, CMD, Prime Database. Analysts also note that it is not an ideal situation for such large number of stake sales, as there are already too many issues lined up for sale. Several multinational companies have listed their Indian units and retained more than a 75% stake.