Investors flock to MNCs on delisting hopes

Multinational companies (MNCs), with promoter holdings in excess of 80 per cent, are once again hogging the limelight, with most climbing to their highest levels in about a year, on the back of expectations of delisting offers at lucrative prices.

Shares of Alfa Laval have rallied 26 per cent to Rs 3,511 in past four trading sessions on hopes that the Swedish parent may accept Rs 3,850 a share as the final price to delist its shares from India, 35 per cent more than the indicative price of Rs 2,850. The delisting offer of the company closed on February 22.

 

Oracle Financial Services Software surged 17 per cent to Rs 2,583, on Friday, on buzz that its parent Oracle Corporation was looking to delist the company.

Besides, Astrazeneca Pharma India, BOC India, Kennametal India, Timken India, Honeywell Automation and Fresenius Kabi Oncology have appreciated by more than 30 per cent each so far this calendar year, compared with 16 per cent gain in the benchmark Sensex and 19 per cent rise in the BSE-500 index.

Most of these MNCs either have the choice of reducing the promoters’ stake to 75 per cent, or delist the company, due to the minimum public shareholding guidelines.

According to the guidelines issued by the finance ministry in June 2010, all private sector listed corporates need to have at least 25 per cent public holding. The deadline for companies to achieve the stated level of public shareholding is June 2013.

“As these are MNCs and don’t find much logic in staying invested in Indian capital markets, most of them choose to delist from Indian markets,” said Jagannadham Thunuguntla, strategist & head of research, SMC Global Securities.

“Some of the recent examples of delisting provide an indication that the price at which these delisting happen tend to be on higher levels and all the shareholders get an opportunity to tender their shares at those higher levels,” he added.

Analysts feel the corporates, particularly fundamentally strong MNCs, may not have the inclination to increase their public holding and may resort to delisting to have better flexibility in taking business decisions.

“The case for delisting becomes stronger in the current weak trend prevailing in the equity markets, which has led to a substantial fall in stock prices, providing an opportunity for such corporates to buy out the remaining stake with the public at lower valuations,” said Pankaj Pandey, head of research at ICICI Direct in a recent report.

Chances of a delisting offer succeeding also appears higher due to a moderation in returns expected by the public shareholders and the enhanced willingness to exit the stock even at a marginal premium to current prices, added Pandey.