Citicorp Fin Makes Rs 400 Offer For Shares Of Citil

Citicorp Finance (India) Ltd, a 100 per cent subsidiary of Citibank Overseas, has made an offer to shareholders of Citicorp Information Technology Industries Ltd (Citil) to sell their shares in favour of CFIL. The offer price is Rs 400 per share, with the offer closing on August 10.

A section of the shareholding community has however raised questions over the pricing and the prospective earnings (considering current valuations of other software stocks) and are peeved with the timing of the offer. There is a theory doing the rounds that CFIL may at some stage seek to offload these shares to a private equity fund at a higher price.

 

The Citil board has however dismissed this, stating that, "Given Citil is an unlisted company, it is approached directly through intermediaries for strategic investments by potential investors. at this point of time, the Citil board believes that the company can continue to maintain its excellent performance without participation of any institutional third party.''

A shareholder of Citil, on condition of anonymity said, "Most software stocks are valued at 15-20 times prospective earnings. This offer price (Rs 400) is ridiculous...even considering that unlisted shares go at a discount to the listed ones. The EPS for March 1997 was 55 per share, in March 98 it was 80, while it is estimated at Rs 130 per share in March 99.'' CFIL officials and the Citil board declined to comment on the rationale behind the pricing. In an official response, it merely stated, "The terms and conditions of the offer make it abundantly clear that there is no compulsion whatsoever on the part of the shareholder to tender the stock.'' A majority of the shareholders are staff members of the company even today, sources say.

According to the offer letter, CFIL intends to buy a limited number of shares of Citil and if the total number of shares offered to CFIL exceeds this number, the CFIL board will have the option to accept any of the offers. Citil, formed in 1992, will continue to remain an unlisted company and CFIL will carry the shares purchased from its employees on its balance sheet, with attendant equity risks and funding costs.

Initially, the Citil shares were allotted to Citicorp (42 per cent) and the balance (58 per cent) to the staff of Citicorp and Citibank in India.

Initially the shares were allotted to the staff at par (Rs 10 value) and subsequently a 3:1 rights issue was announced at a nominal premium.

"If Private equity players were to make shareholders an offer at 15 times PE...it is only fair that Citil should not object to a better buy-out offer. This is a case of benefiting a Citibank entity at cost of the salaried middle class employee shareholders,'' a source said. According to another Mumbai-based shareholder:

"This is a top-rung company of a well developed multi-national. If a broker-on-the-road were making such an offer we can understand....the intrinsic value is just not evaluated."