Vedanta shares tank on delisting uncertainty

Shares of commodity major Vedanta dropped as much as 15 per cent on Wednesday on concerns that the delisting attempt may fall through. After dropping to an intra-day low of ~117.6, the stock ended at ~122.4, down 11.3 per cent on the NSE, where ~1,365 crore worth of shares changed hands on the counter. Market players witnessed huge selling pressure amid reports of disagreement over the exit price for delisting between the promoter Vedanta Resources and some large investors.

Shares of commodity major Vedanta dropped as much as 15 per cent on Wednesday on concerns that the delisting attempt may fall through. After dropping to an intra-day low of ~117.6, the stock ended at ~122.4, down 11.3 per cent on the NSE, where ~1,365 crore worth of shares changed hands on the counter.

Market players witnessed huge selling pressure amid reports of disagreement over the exit price for delisting between the promoter Vedanta Resources and some large investors, including Life Insurance Corporation of India which holds 6.4 per cent stake.

People in the know said that the promoter group is eyeing an exit price of less than ~170 per share, while large institutional shareholders are keen on getting more than ~200 per share.

The reverse book building (RBB) process, which commenced on Monday, has so far garnered 106 million bids.

Of this, more than 90 per cent is below ~170 per share. For the delisting bid to succeed, at least 1.34-billion shares will have to be tendered in the RBB. So far, the company has got only 8 per cent of it. However, the bulk of bids are placed on the last day. The RBB process closes on Friday.

Analysts say the fate of the delisting will hinge on the price at which large investors, such as LIC, ICICI Prudential Mutual Fund (holds 4.81 per cent stake), HDFC Mutual Fund (3 per cent) and a clutch of foreign portfolio investors (combined holding of 18 per cent), place their bids.

During initial discussions with large shareholders, bankers had explained to investors the rationale behind bidding below ~170 per share, said a person privy to the development.

Several investors are in a dilemma over what price to bid after proxy advisory firms recommended shareholders to place bids at twice the current market price.

In a note, Stakeholders Empowerment Services (SES) recommended “shareholders must offer their shares, keeping the range of ~236-310 in mind. Even if one offers a 2030-per cent discount, the fair range is between ~200 and ~250, given the value seen in the business”.

SES said the current price doesn’t reflect the true value of the company and its holding in Hindustan Zinc (HZL). It further said shareholders should bear in mind that Vedanta is yet to pass on ~12.18 dividend to its shareholders received from HZL.

“By delisting, promoters are going to have 100 per cent in business, removing the holding company discount, and access to cash of HZL. For all their gains, promoters must pay a premium to shareholders,” said the proxy advisory firm.

Institutional Investor Advisory Services (IIAS) said investors can demand between ~306 and ~393 from promoters.

“While IIAS refrains from making price recommendations, indicators suggest the delisting price of 3.5-4.5x the floor price of ~87.3 at the same time,” it said, adding that the current book value is significantly lower than the ~193 per share book value (consolidated) reported in the annual report. IIAS also said Vedanta’s 64.92 per cent equity in HZL itself is valued at ~160 per share.

“We believe the group has a dire need to delist Vedanta and will likely accept a higher discovered price. IIAS recommends investors must actively participate in the price discovery of Vedanta, as there is still some upside from the current market price, even as they exercise caution and balance it against the price at which the promoters will walk away,” it said.

Meanwhile, ICICI Securities in a note on Monday downgraded Vedanta to ‘reduce’ from ‘hold’ with a price target of ~120 per share. “Given the through-cycle return on equity profile for the entity, our target price is more than fair in our view,” it said, citing the reduced book value by the company.