I had created this note on HSBC Investdirect's delisting around end of January 2010. I had also invested in the stock around the same time.
I have a history of investment in this particular counter betting originally on the delisting happening. Links to those post are enclosed below.
1) This was betting on the delisting in Nov 2008.
2) Subsequent posts when the delisting got announced and my exit
The note that I had written in Jan 10
Opportunity Type - Delisiting
Company: HSBC Investdirect
Exchange - BSE
CMP - Rs 231
Equity Base – 70.39
Current market Cap - 1626
Public shareholding – 6.89%
Free float - 112 crores
HSBC InvestDirect was originally floated by the ILFS group and was called ILFS Investmart.
• HSBC acquired IL&FS Investmart from the IL& FS group and acquired 73.21% stake by a share purchase agreement.
• It subsequently made a open offer to acquire 20% of the shares by its letter dated May 20th 2008 at a price of Rs 200.
• On completion of the open offer HSBC raised its stake in the company to 93.86%.
• Having acquired 93.86% stake which is higher than the listing agreement, HSBC had to either dilute stake below 90% or initiate the delisting process.
• Company name changed proposed from Il&FS investmart to HSBC Investdirect by a board resolution in April 2009.
• HSBC initiated the delisting process on June 16th 2009 on receipt of a letter from the promoters to initiate the delisting process.
• Notice of postal ballot for shareholder approval was despatched on June 26th 2009
• Result of postal ballot with the approval of shareholders was acquired on July 28th 2009.
• Filing with exchanges for delisting approval. - Approval process takes 15 days post filing.
• Initiation of reverse book building process for arriving at the delisting price - Process takes one month post receipt of approval from exchanges
• Acceptance of the delisting price and despatch of acceptance amount - 15 days post the reverse bookbuilding process.
Current Holding Structure
Company - HSBC InvestDirect
Promotor – HSBC group - 93.86%
Mathews Fund – 2.05%
Deutsche Mutual Fund – 1.21%
Other public shareholders - 2.88%
There are two important criteria in the delisting laws• The promoters have to acquire a minimum of 50% of the public shareholding when arriving at the reverse bookbuilding price.
• The promoter stake should go above 90% post the delisting process.
In the case of HSBC Investdirect, the stake of the two institutional holders would be sufficient to cover for the 50% criteria. HSBC anyway holds more than 90% of the stake to fulfil the other criteria.
In any special situation case there are three important risk to be ascertained.
1) Price Risk - Deutsche mutual find which is one of the large shareholders had acquired its stake post the delisting announcement in the 260-270 price band. That effectively creates a floor for the delisting price. Our estimate is that the delisting price would be in the 315 -325 mark.
2) Time Risk - HSBC has to complete the entire process within 12 months of the board resolution which will expire in June 2010. So effectively we have about 4 months as the outside time limit on the deal.
3) Deal Risk - The delisting process has got delayed so far because with new SEBI amendment in the takeover code the company has to extinguish all convertibles like GDR’s, ESOP’s etc before it carry’s out the delisting process. The company has existing Esop’s which need to be extinguished and hence there has been a delay in the process. Our understanding post talking to the company secretary and the merchant banker is that they would be able to manage the timeline.
Scenario 1 - Exit thru Bookbuilding Process
Current market Price – 231
Exit Price – 325
Period ( months ) – 4
% Absolute return - 40.7%
Scenario 2 - Exit prior to bookbuilding Process
Current market Price – 231
Exit Price – 280
Period ( months ) – 2
% Absolute return - 21.2%
The company has managed to overcome the ESOP hurdle and made the public announcement on the delisting schedule. The reverse bookbuilding is to open on the 28th of April and will close on the 5th of May. Post the PA the stock jumped from the 230-240 band that it was trading at to the 280-285 band. I bought some additional position ( thought my major position was built in the 230-240 range) at the 281 mark factoring in the clear timelines and my expectations of 6-7% return from here in a months time.