Vedanta delisting: At what price must investors sell shares? Fair value much higher than floor price

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October 6, 2020 1:09 PM

Proxy advisor and a corporate governance research firm Stakeholders Empowerment Services (SES), said that investors must ignore floor price, book value and 52-week low price as they do not reflect the true value of Vedanta shares.

When contacted, Vedanta spokesperson refused to comment on the debt position or impact on revenues due to the shutdown of copper and iron ore businesses.According to SES, Vedanta received Rs 4,500 crore from the Hindustan Zinc, which remains unpaid.

Vedanta Ltd investors must ignore floor price, book value and should rather offer their shares at a price higher than the company’s proposed delisting price. Proxy advisor and a corporate governance research firm Stakeholders Empowerment Services (SES), said that investors must ignore floor price, book value and 52-week low price as they do not reflect the true value of Vedanta shares. The reverse book-building process for Vedanta shares was started on October 5 and will continue till October 9. The floor price at which Vedanta’s promoters are trying to buy out the public shareholders was set at Rs 87.25 per share, meanwhile the book value is determined at Rs 89.38 per share based on the Consolidated Financial Statements at the end of the previous financial year.

Minority shareholders will not be left out

“Just remember one thing that, you must offer shares at a price which you feel is fair. Please also do not be afraid that if you offer a higher price and delisting happens at a price lower than what you offered, you may be left out,” SES said in the report. The advisory firm further highlighted that all minority shareholders’ stake has to be bought by the acquirer at discovered price post the success of the delisting offer. Excluding ADRs, the promoter group holds 52.33% of the total issued paid-up capital of the company while the public shareholders hold 47.67%.

Promoters tried tricks to mute public shareholder expectations

SES, in the report, alleges that the promoters of Vedanta Ltd have “tried many tricks to keep expectation of public shareholders muted”. This includes the Rs 17,400 crores write off, which  resulted in Consolidated Book Value of less than Rs 90 per share. “While, the Investors Presentation and conference calls transcripts and Annual Report presented a very rosy picture of the state of affairs of the Company, the Company wrote off almost Rs 17,400 crores (Rs 15,900 crores owing to Oil & Gas alone) which was more than 40% of the then market capitalization of Vedanta of Rs 39,000 crores,” the report said.

Further, SES said that the floor price does not reflect the true value of Vedanta. This thesis is fuelled by the cash rich Hindustan Zinc Ltd. “Each Vedanta share has 0.74 Hindustan Zinc shares embedded, which itself is valued at Rs 145+, therefore the minimum price is Rs 145, if one takes all other Vedanta assets at ZERO, which is not the case,” SES said. Additionally, the report questions the unpaid Hindustan Zinc dividend of Rs 12.18 per share. According to SES, Vedanta received Rs 4,500 crore from the Hindustan Zinc, which remains unpaid. Hindustan Zinc raised Rs 3,250 crore through NCDs, four month safer paying Rs 7,000 crore interim dividend.

Offer shares at Rs 310 per share

Earlier in June, SES had calculated the valuation of Vedanta from various methods in the range of Rs 236- Rs 310 per share. “Therefore, SES recommends that shareholders must offer their shares in keeping the range Rs 236 – Rs 310 in mind. Even if one offers a discount to the highest price for uncertainties, depressed economic environment, etc and gives a discount of 20-30% the fair range comes to be anywhere between Rs 200 – Rs 250 at least considering the value that is seen in the business,” the report added.

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