Equity of firms with low promoter stake rises

Companies with low promoter holding, especially those where the promoters have between 20 and 25 per cent stake, have seen their share prices spurt despite a falling market.

A significant number of these companies have given positive returns between July 28, when the Securities and Exchange Board of India (Sebi) announced the new takeover trigger of 25 per cent, and August 12. Many others have performed better than the broader market, which has fallen around seven per cent during this period, largely due to global uncertainties. The BSE Sensex fell 7.5 per cent during this period and the broader market, represented by the BSE 500 index, shed 7.2 per cent.

Experts feel while some of this rally could be due to promoter action, others must be moving on expectations of such action. Business Standard had reported last week how a number of promoters holding over 20 per cent in their companies but short of the new trigger of 25 per cent announced by Sebi, are looking to increase their shareholding to the new trigger limit. This is a crucial safeguard against hostile takeovers and a key enabler for further consolidation.
 

SOARING EXPECTATIONS
	Promotor  stake in %#	% Chg*
Shreeyash Industries	24.44	36.49
Intens Air Systems	20.51	23.93
Arcee Industries	23.74	12.67
Trijal Industries	22.12	10.54
Himachal Fibres	24.14	9.57
Odyssey Tech	20.67	6.41
Sikozy Realtors	21.08	5.52
Vora Constructions	24.48	4.98
M&M	24.86	3.52
Rajasthan Tube Mfg	20.71	1.83
Sensex		-7.52
BSE 500		-7.25
# as on Jun 2011    *Price % change: 12 Aug over  28 Jul Compiled by BS Research Bureau

A study by the BS Research Bureau shows at least 17 of 88 such companies which were actively traded during this period gave positive returns since the board meet. Mahindra and Mahindra, where promoters held 24.86 per cent, gained 3.5 per cent. In the past week alone, between August 5 and 12, the stock gained 13 per cent. Sical Logistics has gained one per cent since the Sebi board meet. A number of smaller companies have gained even more. Shreeyash Industries, where promoters held 24.4 per cent, was the biggest gainer at 36.5 per cent (see table).

The BSRB study further showed that another 15 companies outperformed the broader market by falling less than the respective benchmark indices, though they have shown negative returns. HDFC Bank, where the promoters hold 23.28 per cent fell just under four per cent, against the Sensex loss of 7.5 per cent. Gujarat Natural Resources fell 2.82 per cent.

Promoters of these companies still have a small window before the notification is out to get past the 25 per cent line, if they have not got there already, takeover law experts say.

Takeover Code 1997, in force at present, allows promoters who have at least 15 per cent stake to increase their holdings by five per cent every financial year without making any open offer, under the creeping acquisition route. Promoters who hold 20 per cent or more can use this facility to get past the 25 per cent mark before the new rules come into force, say bankers.

Under the new norms, which will take effect once the gazette notification is issued, creeping acquisition will be available for promoters only if they hold 25 per cent or more, the new trigger limit. Creeping acquisition is an important weapon for promoters to consolidate holdings without the burden of open offers and to discourage hostile takeover attempts. Further, the new code also provides for a voluntary open offer by promoters to consolidate their holdings. Even this offer, which can be for a minimum of 10 per cent stake, can be made by promoters only if they have a minimum holding of 25 per cent, according to the takeover panel recommendations, making the number all the more important for promoters.