Tuesday, December 16, 2008

Satyam Maytas Deal - Audaciously Appalling

It rarely surprises me to see promoters pulling a fast one on minority shareholders but the Satyam proposed buying out of Maytas has really surprised me for the sheer audacity of the promoters.

I will not run into the finer mechanics of the deal as there is enough information on the web but the sheer magnitude of money ( US$ 1.3 Billion) being siphoned out to bailout Ramlinga Raju’s son is appalling.

The market has always been sceptical about Mr Raju’s ethical standards. Remember the 500 crore Indiaworld deal that was done during the dotcom boom. The market was abuzz with rumours on how a significant chunk of the money went back to Mr Raju and his family and got siphoned out of the Satyam balance sheet.

No wonder Satyam always trails Infosys and TCS in terms of valuation. This would be a test case to see how far institutional investors push the promoters and ensure that the deal is reversed.

Incidentally “MAYTAS” is the reverse of “SATYAM”.

Friday, December 12, 2008

Andhra Cement

This week there was a news report in the economic times talking about how MNC cement companies like Lafarge, CRH, Italicement have envisaged interest in taking over Andhra Cements which is part of the Duncan Goenka Group.

The ET also speculated that the buyout could happen around the Rs 75 mark looking at historical M& A benchmarks in the industry. The stock promptly closed the day up 20% on the circuit at Rs 18.72. The stock has been moving circuit to circuit and closed at 24.70 yesterday.

I unfortunately haven't been on this gravy train :-) and I don’t see how I will get on as a I think the stock would continue moving up on the circuit till maybe the Rs 50 mark.

So what is it that interests me in the stock?

The current promoter holding is about 73.19% and of the remaining 26.81% the holding pattern has

IDFC - 6.6%
Fidelity - 5.58%
HDFC - 4.53%
Total - 16.70%

There is very less public shareholding in the stock. Once the dust settles down post the deal announcement and based on where the price settles down there could be a arbitrage opportunity playing out during the open offer and a potential delisting play.

Wednesday, December 10, 2008

FCCB - Buyback time

Last week RBI in its press release announced allowing Indian corporates to prematurely buyback FCCB’s that have been issued.

1) The RBI has decided to permit corporates to premature buyback of FCCBs where the source of funds for the buyback is:
i) Foreign currency resources held in India (including funds held in EEFC accounts) or abroad and/or
ii) Fresh ECB raised in conformity with the current ECB norms, provided there is a minimum discount of 15 per cent on the book value of the FCCB.

2) In addition, the Reserve Bank will consider applications for buyback of FCCBs out of rupee resources provided that:
(i) There is a minimum discount of 25 per cent on the book value;
(ii) The amount of the buyback is limited to US $ 50 million of the redemption value per company; and
(iii The resources for buyback are drawn out of internal accruals of the company as certified by the statutory auditor.

Indian corporates have used the FCCB route to raise capital in the current investment cycle. These low cost funds which were pegged to aggressive stock prices for conversion were now coming back to haunt balance sheets. Clearly with the stockmarket crash FCCB’s were either unlikely to be converted into equity or converted at a lower rate ( Ex Pyramid Saimara) resulting in greater equity dilution.

The current credit crunch has come as a boon in disguise for corporates that are sitting on cash or have a steady stream of export income. FCCB’s are quoting at a significant discount to the face value and it is a ideal opportunity for corporates to buyback these bonds and clean up their balance sheets.

I can see a lot of corporates ( Ex Ranbaxy ) using the RBI go ahead effectively. In these tough times it is better to buyback your debt at a discount than equity.