Remember Infratel? That Bharti company where we had posted a few weeks back that offered a near-certain 10% return if you bought on June 14, and tendered shares for their buyback.
Read: The Bharti Infratel Buyback Post on a Near Certain Return
The stock was at Rs. 380 and the buyback was at Rs. 425. Why the arbitrage?
Because it was only available for retail shareholders (who held less than Rs. 200,000 worth shares). For any other shareholder, they would only see 2% of their shares accepted in the offer. The buyback was only for about 2% of shares. Therefore the big guys didn’t arb it out.
Retail shareholders could buy and tender and nearly all their shares would be accepted.
The deal was that:
The offer document states that if you are a small shareholder (i.e. market value of shares is less than Rs. 200,000) and you tender these shares, then 15% of offer is reserved for such shareholders.
15% of the 2.3% is around 0.3% of shareholders. That much is reserved for small shareholders.
But because of the high holding by FIIs and Promoters, it appears that the holding by small shareholders is just 0.19% !
This means: if you buy shares worth less than Rs. 2 lakh and tender them, it’s nearly certain that all the shares you give will be accepted.
The Infratel stock crashed after that date but has since recovered to 358.
The buyback offer has finally been announced.
Here is the link to the Buyback offer document.
Not everyone. You have to own less than 574 shares to qualify:
As on the Record Date, the closing price on NSE, having the highest trading volume was Rs. 348.20/- per Equity Share, accordingly all Shareholders holding not more than 574 Equity Shares as on the Record Date are classified as ‘Small Shareholders’ for the purpose of the Buy-back Offer.
Since the retail owned percentage changed (our post and other such posts must have done the trick) – about 85% of the offered shares will be bought back.
Assume you bought a 100 shares at 380. You invested Rs. 38,000.
You will need to tender all of them now. 84 shares will be bought back and 16 will come back to you.
For 84 shares you will get Rs. 35,700. This will come into your bank account.
The remaining 16 shares you can sell in the market. Assuming you get only Rs. 350 for them, you will get Rs. 5,600.
You get a total of Rs. 41,300 on an investment of Rs. 38,000. In about two months.
That’s about 8.7% pre-tax.
(Since this is short-term capital gains, 15% tax applies, so the post-tax return is about 7.3% in two months)
While this is less than the 10% you would have got if all shares were accepted, it’s still good for a two month holding period. Don’t annualize it please. Such opportunities don’t come every month.
Wait for the offer letter from Infratel. If you don’t get it soon, please contact them. Fill up the form and contact your broker about how to tender them on the exchange. They will help you do so. The money should be in your bank account by Mid-August, and the remaining shares will be back then too.
This is a follow-up post, and we hope you liked the story and the near-certain chance of a decent profit. Do consider getting Capital Mind Premium where such opportunities and more are discussed often!
Disclosure: We do not own the stock above, and have no market positions in it.