Column : Destroying shareholders’ wealth
Pradip Baijal: Nov 27 2012, 01:17 IST
its shares were owned by the government and a minuscule number of shares were traded by very few. This led to the possibility that the share prices could be manipulated by a very limited number of shareholders to very high levels by mutual sales, to enable these shareholders get a very high price at the time of open offer; of course, if the discovered price was a function of the market price. To stop this, it is always advised in contemporary literature that such companies should first be delisted, and then shares sold. Sale of shares at the time of disinvestment can then be based on intrinsic value of the company, which is based on performance, and discovered with the help of advisors and valuers. This was done in this case, but the high manipulated market prices before sale led to an impression that the government undersold the shares under fiscal pressure, not being aware that the high market price was a function of market manipulation of a few.
The optimum share price based on the inherent value of the company’s worth was R155/share. However, the company was traded at more than R300 before disinvestment and around R266 at the time of disinvestment. Such high market price gave an impression that the company was sold at a very low price. It has started falling very severely after the sale, and would go soon below the discounted purchase price. LIC and public sector banks would then incur losses, and the purpose behind
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