Vedanta's delisting seems to have failed, what next for public shareholders

Mining major Vedanta in a regulatory filing on October 10 said its delisting offer is deemed to have failed. The company attributed it to a large number of unconfirmed orders.

"The total number of Offer Shares validly tendered by the Public Shareholders in the Delisting Offer is 1,25,47,16,610 Offer Shares, which is less than the minimum number of Offer Shares required to be accepted by the Acquirers in order for the Delisting Offer to be successful in terms of Regulation 17(1)(a) of the Delisting Regulations. Thus, the Delisting Offer is deemed to have failed in terms of Regulation 19(1) of the Delisting Regulations," Vedanta said in the exchange release.

Equity shares of the company and those tendered by the shareholders in the delisting offer will continue to remain listed on the exchanges for now.

Read more: Vedanta says delisting offer deemed to have failed

The reverse book building process for public shareholders to tender their shares began on October 5 and concluded on October 9. The floor price for share tendering was set at Rs 87.25.

As per regulations, for successful delisting of shares, promoter shareholding must cross the 90 percent shareholding threshold.

Vedanta needed 134 crore shares tendered by public shareholders for delisting to go through.

The promoter group will have to make a clear announcement regarding the success or failure of the delisting offer, along with the final exit price, within five working days from the closure of the bid period, which is October 16, 2020.

Analysts and brokerages highlight that tepid share tendering by public shareholders could be because the offer price was well below the fair price while the company has good growth prospects.

As the company failed to acquire the required number of shares for delisting, it may return the shares tendered to public shareholders.

Makarand Joshi, partner, MMJC and Associates LLP, is of the view that the withdrawal from the delisting process may trigger an insider trading probe.

"The withdrawal from the delisting process for any company acts as a catch 22 for the promoters and key people involved in the deal, as it may trigger the insider-trading probe in midst of fluctuating stock prices during the period coupled with the extremely cumbersome norms making it difficult, if not impossible, to delist a company. Simply put, entry into the capital market for companies is relatively easier than exiting it looking at the regulatory process," Joshi said.

Umesh Mehta of SAMCO Group believes the panic-selling of Vedanta will be an opportunity to buy the value and high dividend-yielding stock.

"Commodity will see a big rally in the next 10 years due to unprecedented helicopter money. Vedanta can be multi-bagger with that perspective," Mehta said.

KRChoksey Research said it expects Vedanta’s revenue and PAT to grow at a CAGR of 1.3 percent and 4.3 percent, respectively, over FY20-22E.

"We apply an EV/EBITDA multiple of 4.3 times on FY22E EBITDA of Rs 23.378.70 crore to arrive at a target price of Rs 168, an upside potential of 36.5 percent," KRChoksey said in a report.

Taking into consideration the prospects that the company has to offer with the completion of the expansion in zinc capacity, cost reduction in aluminum and ramp-up in the oil and gas segment, the company has a good chance to see earnings grow from FY22 onwards, it said.

"The company will also see pent-up demand post-resumption of economic activity with abating of COVID-19 pandemic. The recent recovery in metal prices gives a better picture of Q2FY21 result for the company," KRChoksey said.

Yash Gupta, Equity Research Associate, Angel Broking said as per the reverse book building process the discovered price works out to be Rs 320 which is significantly higher than the current market price. Now we need to see whether the promoter group accepts this offer or comes up with a counter offer.

As per CNBC-TV18, global financial firm Citi has a 'buy' call on Vedanta, but it cut the target price to Rs 130 from 150 and said that the balance sheet and minority shareholder worries will put downward pressure.

Citi has cut Vedanta's FY21-23 EBITDA estimates by 1-4 percent.

Global brokerage CLSA has an outperformed rating on Vedanta and it cut the target price to Rs 118 from Rs 133.

As per CNBC-TV18, CLSA said that the focus is likely to remain on debt concern at the parent entity. CLSA expects the stock to react negatively in the near-term.

CLSA is of the view that the increase in inter-co loans could be negative for minority shareholders.

While CLSA underscored that the high dividend payout would be perceived positively, it said it would await clarification of these issues before changing the rating.

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