Market players were surprised last week when the negotiated deal for Star TV’s 25.99 percent in Balaji Telefilms
was done on the Metropolitan Stock Exchange of India (erstwhile MCX-SX) instead of the more liquid BSE or NSE.
Star TV sold its entire 1.69 crore shares in Balaji at Rs 63.60, a massive discount to market price. Balaji promoters picked up 27.43 lakh shares
, the maximum permissible under the creeping acquisition route for promoters annually. The remaining 1.42 crore shares were picked up by a clutch of investors, which included billionaire investor Radhakishan Damani’s Derive Investments.
Brokers tracking large trades say MSEI would have been chosen as the exchange for the deal as a safe guard against front running and to avoid the usual leakage in any bulk deal.
With the deal priced at a huge discount to market price, players aware of the deal beforehand would have wanted to snatch a piece of the pie. But even if somebody had information about the deal, they would not have expected it be executed on the Metropolitan Stock Exchange.
Even before a negotiated deal is put through on the stock exchange, players with inside information place bids a few paise above what the seller is offering the shares for. As a result, the original buyer will not get the entire chunk he was looking to buy.
In November 2013, British brewer Diageo got 20 lakh shares less than what it had bid for. Many traders outbid Diageo by a few paise
for the 39.18 lakh shares that Morgan Stanley Asia was looking to sell.A similar incident
is learnt to have taken place during the sale of SUUTI’s stake in Axis Bank some months later. Investment bankers associated with the share sale advised their institutional clients to bid for the shares in Rs 1313-1317 range. Some deep pocket traders got to know of the bid range, and placed buy orders slightly above Rs 1317, and cornered around 1.5 crore shares. The institutional investors then had to buy the shares at a higher price, most probably from the same traders who had pinched the shares meant for them.
Even otherwise, the buyer in a negotiated deal does not get the full block of shares if the deal is done at a discount to the market place. That is because all unexecuted bids at higher prices in the order matching system—not necessarily belonging to traders alone with insider information—will be matched with the sell order.
Simply put, the BSE and NSE follow order driven systems in which the best buy order (highest price) will be matched with the best sell order (lowest price).
In the Balaji Telefims deal, had the deal been done on the BSE or NSE, all the buyers in the system above Rs 63.60 would have got the shares at a 20 percent discount to the market price.
Average daily trading volume in Balaji Telefilms in the one month prior to the Star TV deal was close to 3 lakh shares.
Most likely, the buyers in the negotiated deal did not want to miss out on even a single share.
And executing the deal on the Metropolitan Stock Exchange would help thwart any possible front running as well as the usual leakage.
Total trading volume in the Balaji stock on the MSEI on the day of the Star TV deal was 1.69 crore shares, exactly the number of shares that Star TV sold.
Still, there are 10 lakh shares unaccounted for, between the 1.69 crore shares sold by Star TV and the 1.59 crore picked up by the buyers whose identities have been disclosed to the stock exchange.
One explanation could be that these buyers picked up less than 0.5 percent of Balaji’s equity capital and so did not have to disclose their identity. Or is it that some traders did get wind of the impending deal despite all precautions to ensure secrecy?