Vedanta open offer unattractive, can drag stock lower: Analysts

Vedanta open offer unattractive, can drag stock lower: Analysts

NEW DELHI: Vedanta shares were trading nearly 1 per cent lower in Monday’s trade after the parent company, Vedanta Resources, announced an open offer to buy up to 10 per cent of equity, or 37.2 crore shares, of the company at Rs 160 per share, a 12 per cent discount to Friday’s closing price of Rs 182.05.

Analysts said the latest open offer price is unattractive and the stock could come under pressure going ahead.

Edelweiss said that the promoter group is making attempts to increase its stake in the company at an unattractive price and argued that it is not in the best interest of minority shareholders, as the open offer at Rs 160 per share is unattractive, especially in the current commodity upcycle.

After failing to delist in October, Vedanta’s promoter group had bought 4.98 per cent equity from the open market at Rs 159.94 by paying $400 million. With that, the promoters had increased their stake in the company to 55.04 per cent from 50.14 per cent last month through block deals.

As per norms, once failed, promoters cannot launch a delisting offer within one year of the completion of the open offer period. Sebi’s takeover norms, however, allow promoters holding more than 25 per cent and less than 75 per cent to buy up to 5 per cent through creeping acquisition in one financial year.

Any acquisition of further shares beyond 5 per cent requires the acquirer to make an open offer.

“In our view, the risk of prospective offers for acquisition/share purchase might be at discount to the prevailing price, which might yield sub-optimal capital gains for minority shareholders. While the healthy commodity outlook would result in sound cash accretion, the returns to shareholders would be limited, in our view, to a

healthy dividend yield of 8–10 per cent—an imperative given parent’s higher cash requirement,” it said.

Motilal Oswal Securities said it values the Vedanta stock at Rs 187 per share, assigning a 10 per cent holding company discount to its holding in Hindustan Zinc.

“However, an open offer at 12 per cent discount to prevailing market price could adversely impact the stock

price,” Motilal Oswal said.

To buy another 10 per cent at Rs 160 per share, promoters will have to shell out around Rs 5,952 crore. Any increase in promoters’ stake will make it easier for them to delist after one year of cooling off period. Promoters of listed Indian companies have to acquire at least half the public shareholding in their firms or 90 per cent of the total equity capital, whichever is higher to become eligible for delisting.

During the delisting offer in October, promoters were able to get only 125.47 crore confirmed bids against the required 134.1 crore shares. About 12.32 crore shares tendered were not confirmed, and as a result, the delisting process failed.

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