Pharma Companay

De‐listing Norms : How To Play?
New minimum public shareholding guidelines were issued by Ministry of Finance in June 2010, wherein directive for minimum
public shareholding for all listed private & public sector corporates was issued. As per these norms, all private sector listed
corporates must attain at least 25% public share‐holding while listed PSUs should maintain a minimum public holding of at least
10%. The corporates then were given time of three years to abide by the guidelines. Hence, the deadline for companies to
achieve the stated level of public holding is June 2013. So companies, where promoter holding is more than 75%, are left with ~
17 months to decide whether to go for dilution or delisting.
Considering history, we strongly believe that fundamentally strong MNCs, which do not see any major advantage of being listed
and do not want funds from Indian markets or were forced to go for listing earlier, now may not like to increase public holding
and remain listed and rather utilize this new norm as an opportunity to go for delisting so that they can have better flexibility in
taking business decisions.
Apart from above regulatory incentive, MNCs have following other advantages to go for Buyback:
INR depreciation: INR after depreciating over 20% against USD is still down by 10% at present, which gives MNCs an incentive
to go for buyback their shares as their cost will be reduced to the extent of rupee depreciation.
Relatively weak sentiments: The chances of success for delisting become brighter due to moderated expectations for stock
returns and the higher willingness to exit the stock at a small premium to current stock prices.
Relatively cheaper valuations: The case for delisting becomes strong as there has been PE de‐rating and hence fall in stock
prices, thus providing an opportunity for such corporates to buy out the remaining stake with the public at lower valuations.
Sustainable GDP growth: Being second fastest growing economy...