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As delisting dreams turn sour, MNCs under pressure

Investors who were earlier happy betting on possible delisting plans of multi-national corporations (MNCs) are now facing the grim reality of losses.

Investors who were earlier happy betting on possible delisting plans of multi-national corporations (MNCs) are now facing the grim reality of losses. Shares of most MNCs have taken a beating in recent months as the parent companies have clarified that they intend to dilute stake in their respective Indian arm instead of delisting, to meet Sebi requirements of minimum public shareholding.

In the past three months, the share price of non-compliant MNCs which have over 75% promoter holding have fallen. According to minimum public shareholding norms, promoters have to reduce their stake in listed entities to 75% by June 30.

Last Wednesday, Oracle Financial Services Software announced that the parent company would dilute its stake through offer for sale (OFS). On that day, the company’s shares lost over 6% during intra-day trade before closing with a loss of 4%. Timken India, which did an institutional placement in April, saw its stock tumble nearly 3% on the day of the announcement. Novartis India, which is owned by Swiss major Novartis AG, has lost over 10% in the last three months. It has appointed Citi to bring down the promoter holding to 75%.

Astrazeneca Pharma has announced that AstraZeneca Pharmaceuticals AB Sweden has decided to reduce its shareholding in the company to comply with the regulatory norms. Similarly, UK-based BOC Group has also decided to bring down its holding from the current 89.48% in Linde India. Shares of Astrazeneca and Linde India have lost 31.43% and 18%, respectively, in the last three months.

Thomas Cook (India) recently became compliant with the norms after the promoter entity reduced its holding to 75% through an institutional placement programme (IPP). The travel company has managed to buck the trend among MNCs to gain 5.27% since February. ?With supply increasing the prices will get affected but I think it will be a short-term phenomena. Once the overhang is gone, prices will stabilise as MNCs have historically traded at a premium to their domestic counterparts,? said Sonam Udasi, senior VP and head of research, IDBI Capital. .

Last year, speculation in the markets suggested that MNCs like Oracle Financial Services, Novartis, Honeywell Auto, Thomas Cook, Singer, Gillette, Astrazeneca Pharma, Blue Dart and 3M India would prefer delisting from the Indian markets rather than reduce parent company holding by offloading stock through Offer For Sales or other means. Investors had bought into these stocks on the expectation that the delisting would be at a premium to current market price. Instead, investors are now facing a scenario where increased supply and a possible discount in the share offerings could weigh down stock prices.

Investment bankers agree that the larger and better-known MNCs would be able to comply with the shareholding norms, but might have to offer the shares at a discount. ?The only thing to be seen for sell-downs is what kind of discount to the market price they will have to offer and, for delistings, what kind of premiums they will have to pay,? says Sanjay Sharma, managing director, equity capital markets, India, Deutsche Bank. ?Around 10-odd MNCs are non-compliant as of now and, as per our understanding, most of them have initiated the process so they should not have a problem complying with Sebi norms within the timeframe,? he adds.

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First published on: 14-05-2013 at 03:22 IST
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