Complete mismanagement of the bidding process by the two stock exchanges is being blamed by market intermediaries for the disinvestment auction fiasco, where subscription had to be managed in a hurry towards the end of trading
The auction for sale of the government’s 5% stake in ONGC on Thursday received bids only for 68.3% or Rs8,500 crore of the total size of Rs12,000 crore. According to TV channels, Life Insurance Corporation of India (LIC) saved the day for the government by subscribing to over 25% of the 42.77 crore shares. Long after the market closed, both the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) said that they were counting orders. However, market intermediaries blamed the bourses for the mismanagement.
According to market sources, the notice of the ONGC disinvestment was posted by the exchanges only on 28th February. Brokers were asked to deposit 100% of the order value in cash at the order level for every buy order bid. Bidding started at11am today. In addition, the necessary software had to be installed on the terminals and the mock session was conducted only on yesterday. Since the market intermediaries were not in a position to bring in ready cash and in the absence of proper training (just one mock trading session), they found it difficult to place bids on the new system.
The long-delayed sale of the country’s largest oil and gas explorer, set to rank among India’s five biggest equity offerings and the largest so far this year, was conducted via an auction on the stock exchanges, in a test case for a newly approved method. The government had proposed to sell about 42.77 crore shares through the auction at a floor price of Rs290 a piece.
At the end of the one-day auction, the auction got total bids for 29.22 crore shares, including 19.92 crore on the NSE and about 9.3 crore on the BSE platform, exchange official said.
In the event of the total number of orders received at or above the floor price being less than the number of shares being offered for sale, the government would have the right to either conclude the sale to the extent of subscription or cancel the sale. The shares would be allocated on ‘price-priority’ basis, meaning the bidders at highest price would be allotted shares.
The government owns 74.14% stake in the oil company and proposed to sell 5% or 42.77 crore shares. The bids were mostly in the price range of Rs290-Rs293 per share for the auction, which commenced at 0915 hours and closed at 1530 hours today.
Earlier, the bidding began on a weak note and only about 37,500 shares were bid for in the first hour. Till 1500 hours also, total bids had come in for only about 1.43 crore shares, but the momentum picked up in the last 30 minutes.
ONGC ended the day 1.71% down at Rs288.2 while the BSE Sensex closed 169 points down at 17,584.
Since the IPO, the DLF management has faltered at every step in executing its grandiose vision, Veritas points out, even as the stock price has crashed 80% from its peak
Veritas, an independent Canadian Research Firm has said in its latest report on DLF that it does not believe the disclosed book equity and asset base of the company. In fact it argues that via its dealings with DLF Asset (DAL), from FY06-07 to FY10-11, the company has inflated sales by at least Rs11,236 crore and its profit before tax by Rs7,233 crore.”
DLF merged with DAL, which was aimed at repaying the massive debt accumulated by DAL. It was tantamount to a bailout, says Veritas, where promoters had to sell their stake to infuse cash in DAL. Most pertinently, DLF had inflated its numbers and Veritas thinks that something is amiss.
According to Veritas, which earlier blew the whistle on the Ambani brothers, “We also believe that DLF has undertaken questionable related-party transactions to boost the value of DAL prior to its acquisition by DLF, thereby subverting the interest of minority shareholders via a higher purchase price for DAL.” It also stated as a matter-of-factly that “If your investment decision incorporates management integrity, then bypassing DLF will be an easy choice,” Veritas said.
DLF, once the poster boy of Indian real estate, continues to destroy shareholder’s money. As is known, the real estate company is trying to undo every expensive move it has made by selling off ‘non-core’ assets in order to bring in cash to meet current obligations. As of December 2011, the net debt of DLF was Rs22,758 crore.
“(DLF) is an organization under duress. Management is scrambling to consummate assets sales, rationalize its land bank and divest non-core operations within five years of a much-publicised initial public offering (IPO)—in May 2007 at a price of Rs525, proclaiming DLF as a builder of modern India, and the best positioned company to benefit from India’s great leap forward,” Veritas said.
“Since the IPO, (DLF) management has faltered at every step in executing its grandiose vision to be a conglomerate with tentacles spread across hotels (the joint venture with Hilton has ended and Silverlink Resorts is up for sale), build mega townships (exited Bidadi in Karnatka and Dankuni in West Bengal), become free cash flow positive by FY10-11 (Rs -936 crore, for the year), build a mega convention centre in the NCR region (exited in 2009), and so on,” the report noted.
DLF valuations are out of sync with reality and investors should sell it off, says Veritas. “At its current stock price, DLF trades at a trailing twelve months enterprise value/earnings before interest, taxes, depreciation, and amortization (TTM EV/EBITDA) multiple of 18.9x. The company has no free cash flow and no credible plan to de-leverage its balance sheet. A slowing real estate market in a high inflation environment and overexposure to Gurgaon—amongst India’s most speculative real estate markets—will create tremendous pressure on the company’s balance sheet”, it added.
Veritas said it believes that DLF is worth half the current market price, assuming things do work out as planned. “In a best case scenario DLF is worth Rs100 per share—less than half its current stock price of Rs226.35—from its core operations and investments, which approximates 1x Veritas adjusted book value of Rs101per share.” One can imagine what the worse case scenario might be.
The only way out for DLF, according to Veritas, is to restructure loans. This has eerie parallels to what Kingfisher Airlines has done and might end up comatose. The other option is to raise capital vis-a-vis a secondary offering, which will dilute shareholding and halt dividends. Shareholders will probably not take this in good stride. As of 29th February, DLF was quoted at Rs226.35 nearly half of its IPO price, and has fallen roughly 80% from its peak. During the same time period, the Sensex has gone up by 29%.
In a recent press release, DLF said, “…it believes that due to the current macro environment, it may take a few more quarters for the company to regain full momentum.”
Sahara Life Insurance has been caught for several violations which resulted in a Rs12 lakh penalty. There were 23 issues raised by IRDA, for which Sahara was let off leniently. Did Sahara Life Insurance get away too easily?
The Insurance Regulatory and Development Authority (IRDA) has slapped Sahara Life Insurance, promoted by Subrata Roy’s Sahara Group, with a Rs12 lakh penalty. While there were 23 issues discussed in the meeting with IRDA officials, the insurance company got away without much dent in its pocket. The violations for which a penalty was awarded are:
The violations for which a penalty was not slapped are:
In the next article we will give the investment related violations which were not penalised for some reasons.