LIKELY MNCs WHICH WILL DELIST

Post the mandate of 25% public float, in today’s market most of the MNCs are buzzing high. Expectations are huge that many of them would go in for delisting. Infact even Indian companies like Suashish Diamonds are up on expectations that it would go for delisting.

The buzz word today on the floors of Dalal Street is ‘delisting’. And lets take a quick look at what exactly it means when we say a company is going in for delisting.

In simple layman terms, delisting means removing the shares from trading on the stock exchanges. This delisting could be voluntary or involuntary. Voluntary delisting happens when promoters or the acquirers get the approval of the shareholders by a special resolution to delist itself. As per the norms, if public float goes down to 10% or below, the acquirer then has the option to buy the outstanding shares from the remaining shareholders at the discovered offer price. This gives an exit route for the investors but when it is delisting at the behest of the stock exchange, due to violation of norms, then investors are stuck. Offer price has the minimum base price or floor price, based on 26 weeks average traded price, without a maximum price. But companies delisting themselves from regional stock exchanges do not have to provide any exit prices for investors as the stock continue to remain listed in the BSE and NSE. It is only when it is delisted from these two exchanges that exit route is offered.

Given below is a list of MNCs which will have to necessarily either reduce promoters holding to 75% or if they do not want to reduce their stake, go for delisting.

Astrazeneca Pharma		97.91%
Lotte India Corporation		93.09%
HSBS Investdirect		92.89%
Fresnius Kabi		90%
BOC India		89.48%
Gillette India		88.73%
Elantas Beck India		88.55%
Kennametal India		88.16%
Foseco India		86.48%
Saint-Gobain Sekurit India		85.77%
Fairfield Atlas		83.91%
Atlas Copco		83.77%
Ineos ABS (India)		83.88%
Honeywell Automation		81.24%
Blue Dart Express		81.03%
Oracle Financial Ser Soft		80.47%
Novartis India		76.42%
Timken India		80.02%
Sulzer India		80.03%
Sharp India		80%
Alfa Laval (India)		76.73
3M India		76%
GMM Pfaudler		75.62%

Suashish Diamonds is not a MNC but it is sure to go for delisting. Promoters’ stake in the company currently stands at 89.43%. The company had contemplated delisting in Oct 2009 but it did not go through after Ashish Goenka, the promoter and acquirer decided not to accept the discovered price (being the price at which the maximum number of shares was tendered) of Rs.320 per share established by the book building process on the BSE.

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.