INTRODUCTION:

After about a month long of hard pushing, Vedanta resources Plc., the promoter of Vedanta Limited announced that it couldn’t succeed in acquiring the required number of shares to delist the latter. It was on 10^th October 2020, when the murky effort made by the promoters of Vedanta Limited to delist its shares has fallen flat. Amidst the shock waves created by covid 19 and the falling stock prices, many companies listed in the Indian stock markets were taking advantage of the situation to delist their stocks from the stock market. Unlike one or two delistings per year, around 13 companies had announced delisting of their shares in the year 2020. While some were successful in buying back their shares during the dry spell induced by covid 19, others were unsuccessful. Vedanta which was no exception to this trend of advantageous delisting couldn’t make it a success at the end. While the concept of IPO has been dealt in many of the earlier studies^{1, 2, 3}, the impact of various corporate announcements on their stock prices was also explored in several studies^{4, 5}. On the other hand, there are studies that have focused on investors behaviour in the context of stock market^{6, 7, 8, 9, 10}. Unlike the previous studies, the current case study throws light on the delisting and reverse book building process through the narration of Vedanta’s delisting failure.

Background of Vedanta Limited

Vedanta Limited formerly known as Sterile Industries is a leading Indian based mining conglomerate which majorly deals in mining and metals like Iron ore, zinc lead silver, copper, steel, aluminium, oil and gas, power. Along with India, the company has a prominent presence in Australia, Namibia, South Africa and Ireland. Ranging from exploration of metals, extraction of oil and gas, refining the raw products, converting them into value added products like rods, sheets, rolled products, bars etc., the operations of Vedanta limited were spread across the entire value chain of mining and metals. In India, they have three operating blocks for producing oil and gas. The company has leading positions in the market across its various verticals. While in the primary zinc market of India, Vedanta limited has a lion’s share of 77%, in the primary aluminium market of India the company enjoys 37% of market share. Moreover, the company also contributes to nearly 26% of crude oil production in India and is one among the India’s largest iron ore miners and copper producers. In the year 2007, the UK based mining giant Vedanta Resources Plc. owned by Anil Agarwal has acquired Vedanta Limited with a controlling stake of 51%. As on 31^st March 2020, Vedanta limited has a standalone net sales turnover of Rs 35,417 crores and consolidated net sales turnover of Rs.83,545 crores. The structure showing the promoters, subsidiaries and divisions of Vedanta limited is shown in figure 1.

Delisting Process – How it Works?

In simple terms delisting can be understood as a contra IPO process where in a publicly traded company is converted into a private limited company. After delisting, the shares of the company cannot be traded publicly in the stock market. The delisting decision of a company may be due to compulsory reasons or voluntary reasons. Instances of compulsory delisting would be where the market regulator like SEBI notified a company to delist due to non-compliance of regulatory requirements or in case of acquisitions, where the acquirer no longer wants the acquiree company to trade publicly. On the other hand, voluntary delisting decision by a company could be due to various reasons like high cost of compliance, lure for private profitability, operational flexibility etc.

In the case of Vedanta limited, it was the voluntary decision of its promoter to delist it from the stock market. In such cases of voluntary delisting, the promoter has to run through an extensive procedure of delisting and acquire at least 90% stake in the company through reverse book building process, for the delisting to be successful. Once the promoter has launched reverse book building process, the shareholders of the company can bid their shares for buyback at a price equal to or above the offer price notified by the promoter. The lowest price at which the promoter is able to own 90% of the shares is known as discovery price or exit offer price. On finalising the exist price, all bids below or equal to this price will be accepted by the promoter. The process of delisting has been depicted in figure 2.

The Delisting Saga of Vedanta

Vedanta resources Plc. was desirous to delist its Indian subsidiary Vedanta limited to acquire a direct control of cash rich Hindustan Zinc. On May 12^th 2020, Vedanta Limited had notified NSE and BSE about the intention of its promoter Vedanta resources Plc. to acquire 100% equity stake of the company. Further the increase in promoter’s equity stake from 50.3% to 100% would subsequently lead to delisting Vedanta limited from Indian stock markets. It also notified that, the indicative offer price of Vedanta Resources Plc. to buy back equity shares of public was Rs.87.5 per share which was at a premium of 10% of the trading price of Rs.79.6 per share as on that date. The basic reason for delisting as mentioned by Vedanta Resources was corporate simplification¹³. According to it, the delisting of Vedanta Limited would enhance the group’s flexibility in both financial and operational terms in a capital-intensive business such as theirs. On 18^th May 2020, the board of Vedanta limited had approved the proposal of its promoter Vedanta Resources Plc. to delist the company. In a special resolution by postal ballot, in June 2020, 84.3% of public shareholders and 93.3% of all shareholders had approved the delisting of Vedanta Limited’s shares.

However, according to analysts, the offer price was not impressive and criticised the promoter for offering such a low price against its fair value. According to Stakeholders empowerment services (SES), the offer price of the promoters doesn’t reflect fairness, seriousness and intent¹⁴. Further based on the company’s EPS, Book value per share and other metrics, they have estimated the target price as Rs.310 per share which was three times more than the offer price. Motilal Oswal, a leading financial services firm in India has estimated that according to sum of the parts valuation (SOTP) the fair target price was Rs.114 per share which was nearly 30% more than the offer price. Several other leading analysts also gave their estimations which were much more than the offer price of Vedanta. These criticisms have created heightened interest about the next move of Vedanta towards delisting.

Following the approval of majority of shareholders, both the stock exchanges NSE and BSE gave their in-principal approval on September 28^th 2020. Subsequently the reverse book building process of Vedanta kicked off on 5^th October 2020, with a floor price of Rs.87.25 and closed on 9^th October 2020. The 5-day bidding process of Vedanta was nothing less to a suspense thriller movie. According to delisting regulatory requirements, Vedanta Resources needed 134 crores shares tendered by public shareholders to cross the threshold of 90% shareholding¹⁵. On the last day of bidding, in the morning the chairman of LIC which has 6.3% stake in Vedanta Ltd. said in an interview that the company won’t tender their shares below Rs.320 per share as they deemed it as the fair price. On the same day in another interview during afternoon, the chairman of Vedanta Resources stated that the bidding process is favourable and they are likely to reach the threshold of 90% by the end of the process. Till the final hour everyone expected that Vedanta would easily pull off the delisting process. With a sudden twist, by the end of the bidding process, Vedanta resources fell short of the required number of shares to meet the cut off of 90% for delisting.

On the following day Vedanta Resources announced that while the minimum required shares for delisting was 134.1 crores, the public shareholders have tendered nearly 137.8 crores shares. However, out of these only 125.47 crores were confirmed which was short by 7% to reach the required threshold of 90% and therefore the delisting was unsuccessful. Further over 72 crores shares of the received bids were tendered at Rs.155, 21.5 crores shares were tendered at Rs.160 and 32.1 crores shares were tendered at Rs.320 per share. LIC which was the single largest institutional stake holder after the promoters stood firmly at its tendered price of Rs 320 (270% above the floor price) which was considered to be a game changer in increasing the exit price had the delisting been successful. As the delisting was unsuccessful, within a period of 10 working days i.e October 23^rd 2020, the shares tendered by the public shareholders would be put back to their Deemat accounts.

Questions

1. Why do companies delist? Examine the pros and cons.

2. What are unconfirmed bids? Were unconfirmed bids the only reason for the failure of Vedanta Limited’s delisting? Discuss.

3. Why reverse book building is a requirement to delist from the stock markets? Why can’t a company buyback the shares at the price it wishes for delisting itself?

4. What will happen to the tendered shares if the delisting is unsuccessful?

5. What precautions should Vedanta resources take if it plans to go for a delisting again?

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Received on 12.06.2021 Modified on 20.08.2021

Asian Journal of Management. 2022;13(1):101-104.

DOI: 10.52711/2321-5763.2022.00018