Failed Delisting of Vedanta: What, How and Why?

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Little Background:

Vedanta Limited (Vedanta, VEDL), a subsidiary of Vedanta Resources Limited, is one of the world’s leading natural resources companies with significant operations in oil & gas, zinc, lead, silver, copper, iron Ore, steel, and aluminium & power, across India, South Africa, Namibia, and Australia.

In May 2020, Vedanta ltd came up with a de-listing proposal. The term “delisting” of securities means removal of securities of a listed company from a stock exchange. After delisting, stocks of that company won’t get traded on stock exchange. Before going deep into this saga, there are few terms related to de-listing, that we should understand.

Delisting procedure:

Any company which want to get delisted from Indian stock exchange need to follow SEBI (Delisting of Equity Shares) Regulations, 2009.

1. Public shareholder’s approval: Company having delisting proposal must get approval from its public shareholders by the way of special offer. It will be considered as approved only if the  votes  cast  by  public  shareholders in favour  of  the  proposal  is  at  least  two  times  the number  of votes cast by public shareholders against the proposal. Company need to mention ‘Floor Price’ in the proposal.
2. After shareholders’ approval, company needs to take approval from respective stock exchanges.
3. Company will start reverse book building procedure in which public shareholders can bid for any price on or above floor price.
4. For delisting, company promoters need to gather at least 90% equity shares. So at whatever minimum price per share promoters were able to gather those many shares, is called as discovery price or exit offer price.
5. Thereafter, promoters either accept the exit offer price and delist the company Or make counter offer within two working days Or cancel the delisting process altogether.
6. Public shareholders who don’t want to tender their shares back to promoters, can enjoy their right of voting, getting a dividend (if declared). They also have additional window to return the shares to promoters at final delisting price within a window of one year after successful delisting.

So, What went wrong in Vedanta’s case?

Vedanta’s promoters kept the floor price at Rs.87.5 which was well below its 52-W high price of Rs.166.1. Its promoters need to gather minimum 134 crore shares to get to 90% mark. Initially, they received offers of 137 crore shares. Everything seemed going well!

But later it was found that offers/bids of only 125 crore shares out of 137 crore shares were confirmed ones. This discrepancy was due to foreign shareholders’ unconfirmed bids. Foreign shareholders hold shares through a custodians. But custodians are not allowed to participate in secondary market transactions. So, they channel through their brokers to access the market. So, broker place the bid, but their bids later need to be confirmed by respective foreign shareholders. In Vedanta’s case, many brokers placed the bids though they or their foreign clients did not own Vedanta shares and thus virtually taking share offer count to 137 crore. SEBI initiated an investigation in this case, as showing this kind of false participation of foreign shareholders motivates minority retail shareholders to tender their shares.

But this was not the only cause behind failed delisting of Vedanta!

LIC’s stance for right valuation in Delisting:

The king of domestic institutional investor, Life Insurance Corporation of India (LIC), which owns 6.37% stake in Vedanta placed a bid of Rs.320 per share. It was 265% premium to the floor price. As Vedanta’s promoters need to acquire LIC’s stake to reach 90% share mark, discovery price or offer price went up to Rs.320 per share.

It was interesting to see that the so-called transparent mutual fund industry was ready to give up their stake in Vedanta, which generated Rs.83545 crore revenue along with profit-after-tax (PAT) of Rs.6122 crore during FY20, near to its floor price. While, public sector LIC, which always got bombarded with inefficiency and non-transparency, stood firm to get the right deal by placing higher bid.

Anil Agarwal led promoters planned to buy the shares of Vedanta held by public shareholders at Rs.16000 crore. But due to LIC’s bid the cost of acquiring the same shoot up to Rs.40000 crore. So, promoters had to cancel their Delisting plan of Vedanta.

Please let us know in comments what do you think about Vedanta’s delisting saga.

Disclaimer: This information is only for educational purposes. Please consult your own financial advisor before investing.

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