Governance Firm SES Pegs Vedanta’s Fair Delisting Price At Rs 200-250 Apiece

A governance advisory firm recommended a 129-186% premium to the indicative offer price set by Vedanta Ltd. to buy back shares for delisting from stock exchanges.

Stakeholders Empowerment Services recommended that shareholders must offer their shares in keeping the range Rs 236-310 in mind. “Even if one offers a discount to highest price for uncertainties, depressed economic environment, etc. and gives a discount of 20-30%, the fair range comes to be anywhere between Rs 200 and Rs 250 at least considering the value that is seen in the business,” it said in a report. That compares with the indicative offer price of Rs 87.50 per equity share and floor price of Rs 87.25.

“The first advice of SES to shareholders is that, do not be guided by what is floor price, what is book value given, what is market price or what is their purchase price. You must offer shares at a price which you feel is fair,” it said in the report. “Do not be afraid that if you offer a higher price and delisting happens at a price lower than what you offered, you may be left out. SEBI delisting regulations guarantees that the acquirer must offer to buy shares from all remaining shareholders at discovered price in case delisting offer is successful.”

Vedanta Resource Plc. on Sept. 29 announced the start of the delisting process of its main India unit. The reverse book building will commence on Oct. 5 and close on Oct. 9. The book value — net worth of the company divided by total number of outstanding equity shares — calculated on the basis of consolidated financial statements as on March 31, 2020 works out to Rs 89.38 per share.

The delisting is part of chairman Anil Agarwal's plan to simplify his investments across the complex multi-tiered corporate structure. Vedanta has interests in zinc, aluminum and oil and gas, all of which have been hit by volatile prices and concerns about weak demand for metals and hydrocarbons because of the coronavirus pandemic. Besides, the Madras High Court rejected the company's plea challenging the closure of its copper smelter unit in Thoothukudi, Tamil Nadu that accounted for nearly half of India's output, denting the group's revenue.

Since the delisting announcement in May, Vedanta's shares have shot up by nearly 60%. The stock closed flat at Rs 137 apiece on Oct. 1 compared with a 1.51% gain in the Nifty 50.

According to the SES report, the company is trying to use an old technique of creating a negative environment to convince shareholders to offer their shares at throw-away prices. The stock price of Vedanta remained stable despite a Rs 17,400-crore write-off in the fourth quarter of 2019-20.

The market, however, realised that the write-off is not a cash loss but a mere book loss. The market was unperturbed. It does not impact going concern assumption of business and is a mere revaluation or an accounting gimmick to create negative sentiments, the report said.

Second, the floor price doesn't reflect the true value of Vedanta's subsidiary Hindustan Zinc Ltd., the report said.

Based on the market cap of Hindustan Zinc, its value embedded in Vedanta is about Rs 55,000 crore. That translates into Rs 148 per equity share, almost 70% higher than the floor price and 65% higher than book value.

Besides, the governance firm raised concerns over recent activity of promoters for raising resources.

Vedanta has not distributed dividend amounting to Rs 4,500 crore received from Hindustan Zinc as per its dividend distribution policy, the report said, triggering doubts that such actions are meant to shore up Vedanta's cash.

Also, Hindustan Zinc raised Rs 3,250 crore by issuing non-convertible debentures despite no sign of sudden slump in its business.