http://www.bseindia.com/xml-data/corpfiling/AttachHis/Aanjaneya_Lifecare_Ltd_280613.pdf
While trying to figure out the reason, I read the Offering Circular FCCB which envisages the only adjustment contemplated to the conversion price was as per Clause 5.3 of the FCCB which stated that The Conversion Price of the Bonds will be reset downwards only if, on the Reset Dates, the average of the Volume Weighted Average Price (VWAP) of 21 consecutive Trading Days on BSE prior to and including any of the Reset Dates is lower than the Conversion Price prevailing on that Reset Date. Maybe this was to safeguard against price manipulation on that date. However, even this came with the caveat that The Conversion Price will not be reset below 90% of the Conversion Price prevailing on the relevant Reset Date. However, such Conversion Price will not be reset below the floor price which is in turn defined as The minimum conversion price of a convertible bond as calculated under the provisions of Press Note dated 21 November 2008 issued by Ministry of Finance, Govt. of India
The promoter holding has steadily dipped from 60% to 40%, so maybe this was a way to use friendly FCCB bondholders to acquire control at bargain basement prices. After all, the company trades at P/BV of hardly 0.2 and with net debt of hardly 300 odd crores{Gross debt Liabilities around Rs 735 Crores less Cash Rs 212 Crores minus 50%*443 Crores of inventory+receivables=>approx 300Crs http://www.bseindia.com/xml-data/corpfiling/AttachHis/Aanjaneya_Lifecare_Ltd1_300513_Rst.pdf}, control could be got at Rs 600crs or so, for which you get a 500MTPA quinine plant at Mahad, a plant at AP and brand. Plus the management has won quality awards including one for its annual report. The name change to 'Dr Datson's Labs' seems reflective of management's R&D focus. The auditors and merchant bankers are lesser known brands, nothing against that but does nothing to enhance investor confidence in price discovery of FCCB/fairness of FCCB allotment process.
The questions I have are
- Even if share price dropped to hardly 20% of earlier highs, is that a reason to say that price discovery done hardly 3 months ago, was improper? Does management not expect the stock price to recover to its old highs, even in 5years from now i.e 2018? Or did a bull cartel drive down the share price to force the company to reset conversion price, and hence acquire control? After all, unlike direct share purchase, FCCB holders identity is not disclosed.The auditors and merchant bankers are lesser known brands, nothing against that but does nothing to enhance investor confidence in price discovery of FCCB/fairness of FCCB allotment process.
- Institutional shareholders hold a majority voting stake with Religare Finvest 13.43%, Apex Drugs 9.44% and some brokerage firms 10.7%. Their collective vote of 33% odd percent will be crucial, given the management's vote at just 41%. Shareholding Mar13 Will institutional shareholders abstain/back management as always, or go ahead considering this is allotment at the existing market price only(almost)? This is an interesting question since if they decide to be activist, there can be plenty of trouble.
- In such cases where potential equity shares are 3x of existing capital, should repricing be
allowed in the first place, without an open offer to the remaining shareholders? Will the SEBI ruling in case of IFCI apply where open offer is exempted http://www.moneycontrol.com/news/market-news/sebis-exemptionifcis-open-offer-what-is-it-about_763393.html
Even if the share looks cheap, management does not think so, nor does the street otherwise an equity white knight should have come by now. Anyways, this is worthy of a case study in itself, and if successful/unchallenged, may write a new takeover strategy.
Very insightful indeed!! the present day status further reinforces your view!
ReplyDeleteWhether I am a fantastic investment guru or tipster or not is immaterial as I would always avoid answering such questions without knowing and understanding the financial background, status and financial goals of the questioner. profits
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