- Wealth PMS (50L+)
Fresenius Kabi Oncology (FKONCO) is down 20% today on news that well, they won’t delist the company. The company’s been trading at over Rs. 100 per share on the hopes that the company’s promoters, who own 90% of the company, will choose to delist because of SEBI’s rules that all public companies should have at least 25% non-promoter shareholding.
Delisting is an interesting "theme". Atlas Copco delisted last year through a reverse book building process where everyone bids for how much they will sell their shares for. The discovered price for Atlas Copco was more than double the price a few months back, and with a few such stories everyone decided that it was time to jump onto stocks which had foreign promoters and had more than 75% shareholding. FKONKO was one, trading at a P/E of over 30 despite having crappy financials. They made about Rs. 50 cr. (500 million rupees) in 2012, with more than 32 cr. as extraordinary items like one time accounting entries, and the company’s valued at 1500 cr.+ (15 bn) The stock was at Rs. 175 in April, falling to Rs. 135 yesterday.
And then they say this:
Fresenius Kabi Oncology Limited ("Company") has received a letter dated May 30, 2012 from its promoter shareholder, Fresenius Kabi (Singapore) Pte Ltd. ("FKSL") notifying the Company of its intention to undertake one or more `offer(s) for sale’ on the stock exchanges ("OFS") for sale of up to 23,734,148 equity shares representing approximately 15% of the total share capital of the Company in one or more tranches, subject to receipt of relevant regulatory approvals and the market conditions. The objective of the proposed OFS is to increase the public shareholding of the Company.
Instead of delisting, the promoters will sell 15% of their stake to meet the regulation.
A "guru" advisor, SP Tulsian said he believed they would delist and the stock would go back to 175, just a week back. (He owns the stock)
Apart from the working as I said that promoters have 90% stake and the delisting move is almost certain, I don’t think that they will really opt to dilute their stake in the company to 75%. Instead they will prefer to go for the delisting route and that is likely to happen in maybe three-four months time and once we see these kind of news coming on the stock exchanges that the delisting move has been initiated or the promoters have given an intention or their expression to the company for initiating this delisting move, we see the stock start moving up swiftly and goes up maybe by 20-25% in next week or so post that event happening. Again on a price level I don’t think that share can really fall below Rs 120. In the worst case scenario if you see the share price it has not fallen below Rs 120 but if on the hopes of delisting move getting triggered the stock can move to Rs 175.”
The stock has fallen 20%, on the lower circuit at Rs. 108. The delisting "bubble" bursts once again, stock by stock. Not only is it not a safe strategy, the losses look like they will substantially overshadow any profits – lower circuits mean you can’t even get out.