Archi Damania and Nimesh Shah, CNBC-TV18

Through it's subsidiaries, HSBC has acquired 73.21% stake in IL&FS Investsmart. It has acquired 43.85% from E*Trade Mauritius and 29.36% from IL&FS. HSBC will be required to pay Rs 200 per share for the stake in IL&FS Investmart at a total of about Rs 1,002 crore. HSBC has agreed to pay IL&FS Rs 82 crore as a part of three-year non-compete agreement. This fee works out to Rs 40 per share for IL&FS.

While HSBC's open offer to IL&FS will have to be made at Rs 200 per share, the response to the open offer will only decide the delisting option. If HSBC gets an additional 1.76% stake from the open offer, it may have to delist, because the SEBI norms require a 25% free float for a company to trade on the exchanges.

In terms of valuations, at the price of Rs 200 per share, IL&FS's FY08 PE works out to be 24 times its earnings. Comparing it with its peers, Religare's FY08 PE is also 24 times, while Edelweiss' is at 23 times its earnings. India Infoline is slightly higher at 37 times.

But there is a caveat to this open offer getting through; IL&FS Investmart has a commodities business as well, which is around 2-3% of its revenues. Earliers BNP Paribas and Geogit open offers did not get through because Geojit has a commodities business and BNP has global banking operations and the issue is still lying with the RBI. There is a chance that this may happen with HSBC as well. And so it may just have to hive off its commodities are to let the open offer get through.

Another factor could be that the IL&FS Investsmart stake sale includes a non-compete fee of Rs 82 crore to the promoter. This may delay the open offer process and HSBC may need to include the non-compete fee in the open offer price.