Vedanta: Delisting price may be significantly higher, say analysts

Improving fundamentals suggest promoters of the base metals major may need to pay more; reverse book-building holds key for price discovery

With the Vedanta group completing its fundraising recently to accomplish the objective of share buyback and delisting Vedanta Limited (Vedanta) from stock exchanges, all eyes are now on the proceedings hereon, especially the delisting price. Given the indicative price and the gains posted by the stock since the announcement, the promoters may have to shell out more to take the company private.

The promoter group (led by Vedanta Resources) had given an indicative offer price of Rs 87.5 a share on May 12, which was at a discount to the previous day’s share price, as well as a 41 per cent discount to its FY20 book value (according to Vedanta’s audited results statement). 

However, on Wednesday, the UK-based Vedanta Resources said in a release, the book value of Vedanta, according to delisting regulations for the year ended March 31, is Rs 89.38 per share, as extracted from the audited consolidated financial statements and reviewed by Vedanta Resources’ advisors. The company had received shareholders’ approval for delisting in June (that has one-year validity). Though the process, after shareholders’ approval, had got delayed as fundraising completion was awaited, the ball is now set to roll. Looking at the quantum of funds raised, analysts expect the promoters may accept investors’ offer bids at a much higher price to achieve successful delisting. Analysts at Kotak Institutional Equities say fundraising of $3.15 billion implies the ability to pay at least Rs 139 a share. Since the announcement in May, the stock, too, has gained almost 65 per cent to Rs 131 currently.

 

 

The outlook for non-ferrous metals, too, has improved as base metal prices have rebounded from lows. On average, base metal prices on the London Metal Exchange are up 22.4 per cent in the past three months. Vedanta’s key business segments, such as zinc, oil, aluminium, and silver, which contribute most to profitability and drive earnings, have seen good recovery after hitting a trough in March-April. Additionally, low coal and alumina prices bode well for the aluminium segment’s performance.

This also indicates that the promoters may end up accepting higher bids for a successful delisting. The promoters own 50.1 per cent stake, whereas 45.9 per cent stake is held by institutional investors and public; about 4 per cent is through ADR (American Depository Receipts). After applying for in-principle approval, the crucial reverse book-building process will need to start soon.

The reverse book-building process is a crucial time for investors as they will need to submit their bids. The trend on the indicative price of bids being made by participants will be available with the bidding’s progress, and investors can take cues from the same. 

The key for price discovery will be institutional investors, who collectively hold over 34 per cent in Vedanta. So, the promoters will need to take institutional investors into confidence and convince them on the delisting price.

Usually, delisting takes place at a price that is 60-80 per cent higher than the floor price, say analysts, which comes to Rs 140-Rs 157.50 per share, and is close to what the promoters may be looking at after raising funds. However, the stock had seen significant higher levels of Rs 340 during January 2018, when the cycle was favourable and 

commodity prices were strong.