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INDIAN MARKET TRENDS
From 8th May to 14th May, ML Large-cap Index and ML Small-cap Index rose 1% each. ML Mid-cap Index, ML Mega-cap Index and ML Micro-cap Index ended flat. The NIFTY and the Sensex fell 1% and 2%, respectively.
 
 
FUND FLOWS
Foreigners: Foreign institutional investors were net sellers of equities during the period (Rs3,563.11 crore). They...
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  • How Vedanta’s Opportunistic Delisting Attempt Is Part of a Pattern
    If the Indian industry wants a bailout and an economic stimulus and lobbies as a group, can it remain silent about its members' over-opportunistic actions to take advantage of the situation?
     
    Remember, the COVID-19 calamity is relatively recent; but investors and savers have been badly hit by dodgy business practices and corporate scams in the past couple of years. The list of high-profile corporates who have decimated investor wealth is long – Infrastructure Leasing & Financial ServicesYes Bank, innumerable names in the realty and finance sectors led by DHFL and HDIL, the latter destroying PMC (Punjab and Maharashtra Cooperative) Bank in the process of going under. Every one of these has been a celebrated member of our large industry associations/lobby groups by sponsoring their many public programmes. 
     
    Consequently, industry associations, that lobby incessantly for concessions, never censure scams, dishonest deals or opportunistic actions of their members. 
     
    The context for this is the news that Anil Agarwal, the scrap-dealer turned billionaire industrialist, is capitalising on market distress and investors’ anxiety about a looming recession, to take his Indian company, Vedanta Ltd, private. He has announced plans to buy out public shareholders at a steep discount to book value. Vedanta promoters hold a 50.14% stake and have announced plans to buy out the remaining 48.94 % shareholding at a floor price of Rs87.50. Although the price was at a 9.9% premium to closing market price on 11th May (Rs79.6), when the deal was announced, it is a steep discount to its book value of Rs177 and the 52-week high of Rs180. 
     
    Fortunately, the hard-fought reverse-book building process remains in place, despite corporate pressure to scrap it and that will determine the eventual offer price. Under this, bids from minority shareholders help determine the exit price in what is called reverse-book building. The company needs to buy back just over 25% of the public shareholding to take its stake over 75% after which it can be delisted. Investors may get something better than the floor price, but it would be wrong for shareholders to assume that the deal will fall through. 
     
    A board meeting of Vedanta is planned on 18th May to decide on the delisting after perusing a due diligence report from its merchant bankers. Will anyone from its glittering board of directors, which includes former chairman of Securities and Exchange Board of India (SEBI) UK Sinha, show the spunk to object? We will know soon enough. 
     
    It is important to remember that Vedanta Plc, the group parent company, also went private in 2018 amidst controversy. The group has always cultivated powerful influencers in government and had close links with former finance minister P Chidambaram who has been a director and legal advisor before becoming the finance minister. Many of Vedanta’s controversial deals went through under his watch. 
     
    The global rating agency, Standard & Poor’s (S&P) has said delisting of the Indian unit will improve the group’s corporate structure, credit profile and refinancing options. It also says that it may even enhance the rating of the global mining, oil and gas conglomerate. S&P says, “Successful privatization of Vedanta would improve Vedanta Resources' access to the subsidiary's cash flows. This will be due to more efficient dividend upstreaming (compared to about 50 per cent that is currently paid to minority shareholders).” Ironically, the Indian company has been paying good dividends because the parent company needs the money to service its debt! 
     
    So, the reason for getting rid of minority shareholders when a global recession is looming is clear and is endorsed by the rating agency that is paid by the company. But independent directors on the Indian company are also obliged to look after the interest of public shareholders, who, in this case, account for nearly 50% of the shareholding. Will corporate greed and opportunism win? 
     
    Scores of companies have delisted from the Exchanges in the past decade. Many of these systematically got rid of minority investors by doing multiple buyouts to raise promoter holding past 90% and then threw out the rest of the shareholders by mailing them a cheque. Their stratagems succeeded because the market regulator, SEBI, allowed it and Indian courts are too slow and expensive to deliver justice to minority investors/depositors anymore. 
     
    Vedanta is clearly looking to benefit by buying out investors at a low price and riding out the forthcoming recession without the compliances and disclosures required by a publicly listed company. It is worth recollecting that the realty major DLF had tried this dubious strategy.
     
    DLF had delisted in 2003 during a prolonged economic downturn and tried to re-list shares at a huge premium in 2006, without taking on board even the 0.5% investors who held on, despite the delisting! SEBI permitted DLF to go ahead with its public issue in 2007 and after a seven year investigation barred it from accessing the capital market in 2014. 
     
    That order was controversially overturned by the appellate tribunal in 2015 and is reportedly pending before the Supreme Court. As always, investors suffered; but DLF, which was being touted by some investment ‘experts’ as the next Infosys, never recovered its reputation and has indulged in other manipulative deals in the interim. 
     
    Sterlite/Vedanta, as a group, is also a habitual offender. Or, to use the word of IPS officer Amitabh Gupta, who cleared a lock-down holiday for the fugitive Wadhavans in Mahabaleshwar, Vedanta has a ‘proclivity’ for anti investor, anti-environment actions. I have been documenting this for over 25 years. Read on to see how this group has weathered several controversies and continued to grow.
     
    * In 1998, when Harshad Mehta, a fallen idol and the main accused in the securities scam of 1992, was looking to make a comeback, Anil Agarwal’s Sterlite was among the three stocks that he brazenly tried to manipulate and take to new highs. The investigation unearthed links with the promoter group. The other two were Videocon and BPL. 
     
    * In 2012, when P Chidambaram was the finance minister, Vednata courted huge controversy over the formation of Sesa Sterlite on terms that would help manage the debt of Vedanta Resources plc. The criticism by proxy advisors made no difference. The company splurged big sums of money on a PR blitz to promote its social work and silence critics, activists and civil society. 
     
    * In 2018, its copper smelter at Thoothukudi in Tamil Nadu was shut after 13 people died in police firing during protests. This was not the first time there was problem here. There was another well-reported incident in the 1990s. The plant remains shut today. 
     
    But none of this stopped Mr Agarwal’s growth. He is now a globally known billionaire. The Vedanta stock price in India has jumped since it announced plans to delist. Many investors seem to believe that institutional investors, such as Life Insurance Corporation (LIC) and mutual funds, will force a reversal of the decision. 
     
    It is possible that the low floor price is part of a plan and will be revised upward to create the fiction of an investor victory, while the dividend-paying company goes ahead and delists. Anil Agarwal’s track record suggests that he is unlikely to have made the announcement without preparing the ground and being fully prepared to ride out any controversy.  
     
    His meteoric growth, especially through acquisitions in India and abroad, has never been hobbled, despite the controversies at every stage. Oil and mining are extremely exploitative and powerful businesses which need formidable political linkages through donations, even in violation of stringent rules dictating foreign contributions. It will be interesting to see if minority shareholders can successfully fight Vedanta’s attempt to delist the company.

     

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    COMMENTS

    drvinod33

    1 week ago

    not zing...Zinc

    drvinod33

    1 week ago

    can anybody please enlighten me ? I am holding shares of Hindustan zinc. If vedanta gets delisted, what will happen to hindustan zinc? Post delist, Hindustan zing will be owned by,vedanta( a private company),GOI and other shareholders.

    cjninan

    1 week ago

    Companies like vedanta who are mainly into mining natural resources. Can these companies be singly owned. Its like saudi aramco is fully owned by foreigners whilst the resources belong to india. How can this be possible. Arent they any rules ir regulations. After delisting vedanta will sell our resources and remit the money to pay overseas debt. I am sure there must be some rules. Just like banks in india cannot be owned 100 percent by few individuals. Wonder what will board of directors do. Will they suck up to majority shareholder. What will lic and mf do. I hope all do the right

    lalit.daga

    1 week ago

    Even foreign banks - Standard Charetered IDR seems to have followed the same approach as they are moving to delist the IDR at current rock bottom prices and much lower than what it was offered. Looks like Vedanta is following their footsteps . Not expecting a regulatory support in either case. Vedanta will likely fall through on its own. Stan Chart IDR delisting will go ahead with investor losses.

    AJ_AJ

    1 week ago

    I fail to see what the problem is. Yes, the group has a history of dubious practice with all of its group companies, but the stock market is still functioning freely and has brought the price of the stock down. If promoters see value in their own company, then why not let them buy it? If they are lawfully cheating minority investors by diluting their ownership or if they plan to ignore the leftover minority shareholders entirely then that is a problem that needs to be addressed. However, as of now it seems like they are just buying their company back as any value investor would do.

    REPLY

    cjninan

    In Reply to AJ_AJ 1 week ago

    No boss. No one is bothered if promoter is buying or not. We dont care. What is bothering is delisting. This means people who want to hold shares for long are deprived liquidity. Strange you ask this question

    rajeshrrd2012

    In Reply to AJ_AJ 1 week ago

    of course they are welcome to buy back. But delisting is entirely separate things. if they have confidence in their company and believe that the stock will bounce back, they can buy back stock. But to delist at throw away price, and FORCING RETAIL/MINORITY SHAREHOLDERS to sell at throw away prices is a scam. Hope you get that now.

    ganguly51

    1 week ago

    When Ruias of Essar Steel delisted their share and offered a price of Rs.41 a share, which was much lesser than their issue (loyality price at 75) price in 1980s and not ever paying any dividend, I refused to offer my share. In the mean time Ruias became rich, richer, richest although none of companies had worthwhile performance. Still holding hoping Mittals will take some favourable decision for the old shareholders.

    dharmesh.30

    1 week ago

    A hostile take over by a counter offer to acquire minority shareholders at the book value of 200, thereby the hostile acquirer can mop up 26% in Vedanta and make Anil Agrawals life miserable post delisting, atleast he will have a competitor sitting on his board ? I agree he was a scrap dealer smelting electronic and commercial grade copper for further extrusion which eventually made his a billionaire. But will delisting and making Vedanta help him in acquiring HZL and Balco remaining shares ? As Govt will not divest them to a private company - so even if he goes the DLF of relisting the shares later - isn't that 2-3 years time line - Goct promotes retail investments but SEBI has never protected Minority shareholders interest in listed companies - Why so? SEBI has always acted as a backyard dog of such ROGUE CORPORATES - Why So.? We can also substantiate this by over pricing IPOs ? SEBI has been an ignorant and incopentant when it has to deal with minority shareholder's concerns - Why So?

    REPLY

    rajeshrrd2012

    In Reply to dharmesh.30 1 week ago

    he is welcome to increase his stake by buying from open market, but why to delist and force minority retail shareholders to loos the opportunity to get their legitimate returns.

    gujaratbull.com

    1 week ago

    Surprised to see that there is mention of Cairn India merger ! It was a blue chip company under British promoters but bought at high price and scrapped .

    rajesh.chitalia

    1 week ago

    The author missed one more incident of merger of Cairn Energy with Vedanta to make use of its funds....again, it was against minority shareholders who finally surrendered, against the wish of retail shareholders.

    veereshmalik

    1 week ago

    I envisage the following scenarios -

    a) Those who entered in the last few months at 70s / 80s, may sell and move on.
    b) Some amount of people will panic and take whatever they get.
    c) Some competitor will start buying shares to try and reach a sizeable percentage
    d) Many like me shall simply hold on and wait and watch and maybe keen buying also to average downwards.
    e) Sterlite - Tuticorin is an episode which is still unfinished.

    Disclosure - I have fairly vast holdings in VEDL and Hindustan Zinc, from a middle-class point of view, and recall the killing that many old-timers who held on to DLF Universal when it de-listed may wish to recall too.

    REPLY

    cjninan

    In Reply to veereshmalik 1 week ago

    Thank you. Pls do not sell. This radhiwallah is making a mockery by delisting

    tlrchandran49

    1 week ago

    It is true that the offer price is very much lower to prompt retail share holder to sell the shares, but why is that the share is quoting under Rs100 for quite sometime when everyone feels that Rs.90 is underpriced. The so called analysts, broking firms and some vested interest have down rated the scrip and now crying hoarse that the BV is Rs177 and offer price is Rs.89 or so. When is that BVs and Market Prices are corelated in Indian stock market? all along the share price movements are determined by the so called borking and financial advisory firms without any relation to intrinsic value of the company

    REPLY

    mantrisuresh1

    In Reply to tlrchandran49 1 week ago

    It is safe to assume that the book value could be a standard criteria in the decision making process of promotors in delisting.
    What's wrong if it is taken up by regulators to fix fair price? It might just serve as a protection against unscrupulous attempts.

    tlrchandran49

    In Reply to mantrisuresh1 22 hours ago

    True , will the regulator(s) act in the interest of the minority shareholder?

    mantrisuresh1

    1 week ago

    Can we not suggest a way out by prescribing a precondition for approval that specifically provides the price for delisting that is either the book value or the average of six months closing whichever is HIGHER?

    m.palaniappan70

    1 week ago

    Very good analysis and appreciate your sincere efforts in exposing this fraud. Corporates are always trying to loot the tax payers money in various unethical methods. Banks have been forced to give loans by government earlier to show growth. These so called corporates have not fully utilized the loan amount for the projects as they have give the commission to all (no need to explain more), so it is obvious it would become NPA. It is our fate to see all kinds of fraud in our life. Very very sad to express my regrets. Request everyone don't invest your hard earned money in this group except trading.

    saraswathi.gmk

    1 week ago

    THE CAPITAL POOLED BY ORGANIZATIONS AND INDIVIDUALS ARE BEING FOOLED BY THE GROUP. CORONA HIGHLY INFECTD THE ORGANIZATION TO PUT SOIL ON THE CAPITAL INJECTED BY INNOCENT INDIANS.
    VEDANTA SHOULD BE NATIONALIZED. RBI AND FINANCE DEPARTMENT ARE IN THE HANDS OF VEDANTA. THEY WILL DESTROY INDIA.

    sghosh

    1 week ago

    We all know the dubious past of Mr. Agarwal. Inspite of knowing all that Debashis recommended to buy Sterlite .
    I blindly, I don’t know why, bought that stock and carrying huge loss. Whose mistake is that - Debashis or me. Answer is definitely my stupidity -as I invested my money.

    REPLY

    niranjansar

    In Reply to sghosh 1 week ago

    Investment decision was definitely yours, so the loss will be yours too. It is generally advised to place a stop loss for all your investments (even mutual funds!!) or better to place trailing stop losses for long-term investments. Sometimes partial booking of profits also helps a lot. I have learnt these lessons from the recent crash. I am a subscriber to 2 of the stockletters. I don't blame anyone for the red in my porftfolio, we learn and move ahead.

    cjninan

    In Reply to niranjansar 1 week ago

    I fully agree. Stop loss is critical. Tomorrow who knows ambani can say they wish to delist and take reliance out. Investing through etf is the sane way to do. Cant believe mf cant believe owners. Cant believe anyone other than fd

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