Many Indian companies are waiting for the stock market to revive so that they can launch their IPOs (initial public offerings). But others are equally eager to call it quits. As many as 61 companies have delisted from leading stock exchanges in the last two years. Many more are waiting in the wings.
Companies that announced delisting plans recently include chemicals conglomerate Chemplast Sanmar, multinationals such as Alfa Laval India and acquired firms such as Patni Computer and UTV Software.
Overlooked
Why do companies want to give up on the visibility and value that a stock market listing brings? There are many reasons.
Some companies seem downright vexed with investors' refusal to view their business in favourable light. FMCG challenger Nirma, after diversifying from detergents into chemicals and announcing its entry into pharmaceuticals and cement, saw its stock valuation pegged down in the markets to trade at a big discount to other FMCG players.
Announcing plans to voluntarily delist in 2010-end, Nirma said, “The (company's) profile is likely to change further towards entering into select early-stage and capital-intensive businesses. The nature and risk profile of these businesses may not be easily understood and may not be appropriate for non-promoter investors.”
Steel-door maker Shakti Met-Dor decided to delist last year, as it felt its stock was overlooked by the markets.
Chemplast Sanmar, which announced delisting plans a couple of weeks ago, pointed to the wide swings in the petrochemical cycle, which have led to losses and high debt in recent years. While this calls for fresh capital infusion, regulations prohibiting promoter holdings of over 75 per cent and the current “depressed state of capital markets” have limited the company's options. Delisting is the only alternative, the company decided.
Prompted by law
Quite a few delisting moves have also been triggered by the minimum public shareholding norm stipulated by the Government in 2010, which cap the promoter holdings for listed companies at 75 per cent. After this new rule, multinational firms with high promoter stakes have been quick to announce buyouts that make their Indian arms private.
Alfa Laval Corporate AB Sweden, which holds 88.7 per cent stake in Alfa Laval India, for instance, is opting to buy out all public shareholders to fully own its Indian arm. The Swedish parent has said that the delisting will give it “increased operational flexibility.” Micro Inks, with a German promoter and Atlas Copco, are also doing likewise.
In some cases, delisting proposals have followed a change in the ownership of the company. After acquiring a controlling stake in UTV Software in June 2011, the Walt Disney Group initiated plans to delist the company from the bourses to get “enhanced operational flexibility.”
Patni Computer, acquired by the US-listed iGate Global in January 2011, initiated delisting proceedings in November 2011, so that the promoters can obtain “full ownership.”
In many of these cases, relatively low market levels and a weak rupee have made for an opportunity to acquire the domestic company at a low outlay.
Bonanza for investors
Ironically, though, delisting proposals by companies have proved a bonanza for investors in some cases. SEBI regulations stipulate that a company seeking to delist can only buy back shares at the price set through a reverse book-building process. That is, investors can bid the price at which they will part with their shares.
Now, with investors demanding a hefty premium in some cases, stock prices of companies tipped to be delisting candidates have soared in the moribund market of the past year.
With a 149 per cent gain, Alfa Laval India has been a top performing stock in the last one year.
UTV Software's share has more than doubled, even as the Sensex has made a gain of less than 1 per cent. .
Even Chemplast Sanmar, languishing at Rs 5 when the delisting announcement came, vaulted to Rs 6.37 in the past week — notching up a 27 per cent gain.