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India Cements To Hive Off Chennai Super Kings on Oct 9, Sounds Like A Lottery Ticket?

India Cements will give shares of Chennai Super Kings Ltd. (The company that owns the IPL team) to all its shareholders, for free. The record date is October 9, 2015.

So you get a chance to own the Chennai Super Kings if you buy India Cement Shares now or before October 7, and hold them through the record date. You get one share of the Chennai Super Kings owning company if you own a share of India Cement.

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Apparently, there is no major value being ascribed to India Cements:

  • Stock Price: Rs. 76.9
  • Futures Contract Price (October): Rs. 77.0

Typically, in such arrangements people would believe that the stock price of India Cements will fall (to account for the value in the CSK team) on the record date. The October Futures contract, which expires 29 Oct (much after the record date) should be trading at a lower price to reflect this fall.

But it trades at about the same price as the stock.

Which means no one believes the CSK team is worth all that much.

Is It Worth Much?

The team has been banned for 2 years from the IPL. This is being challenged in court. But it’s apparent that the power of the India Cements Head, Srinivasan, isn’t exactly at its highest right now. The problems for the team is likely to continue; even though there will be 30 cr. shares outstanding (1:1 from India Cements) the company may not be able to make money or in fact may have liabilities based on contracts already written.

We don’t know if the team will be allowed to play. We don’t know if the players will migrate. We don’t know if the IPL will survive without this team either.

The shares will not be listed, so you may not be able to even see a value of the share, in terms of what someone else is willing to pay for it.

However, this is probably the first chance you get to directly own an IPL team, which could be like a lottery ticket; you’re very likely to see it go to zero, but who knows, it could go to a huge valuation as well!