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Infratel Buyback: 100% Acceptance for Retail Means a 9.7% Return in Two Months

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On June 14, we wrote that there was a very interesting trade in Bharti Infratel, due to it’s buyback. (The Infratel Buyback Offer Has A Near Certain 10% Return But You Have To Own It Today)
The concept was:

  • Infratel was buying back 2.3% of its shares at Rs. 425
  • Small retail shareholders were guaranteed 15% of the buyback = around 0.3% of total shares
  • Retail only held 0.19% in the March quarter
  • If small shareholders (holding less than 200,000 rupees worth shares) bought in the market at 382, and tendered the shares, they would get 425 back for nearly all their shares, in two months.
  • And that’s about 10% as a return.

And when the final offer came around, we saw the acceptance ratio could yield us a decent 8.7% return. (Infratel: The Buyback Offer Yields Retail Shareholders A Neat 8.7% In Two Months) This was because small retail had rushed to buy shares and their holding went slightly above the 0.3% that would have guaranteed a full acceptance, so only about 87% of their shares would be accepted.

What’s the Final Situation? 9.7% return post tax.

It seems that those who tendered, as small shareholders, have seen 100% of their shares accepted in the buyback. That’s an awesome return!

  • Bought at 382, sold at 425 for a Rs. 43 gain.
  • You pay STT since you tender through your broker. (0.125% STT) That’s about 50 paise per share, plus you might pay a little brokerage.
  • Gains therefore are taxed at 15% (short term capital gains) so you make about Rs. 37 net of tax.
  • Post tax return on your investment is 9.7% in two months.

Infratel BuybackAt Capitalmind, we love to find such opportunities! Do consider our premium product to get wind of more.

Why Did We Get A Higher Return than 8.7%?

Who cares, you think. I got my money, I should thank my fortune and walk away. But what’s life without a little education?
The answer is: laziness.
Some small retail shareholders would have held shares for years. Addresses change, phone numbers change, demat accounts lie. Some are NRIs who don’t have the patience to do the paperwork. That, and others many not care to respond to such offers at all, and even though they are small retail shareholders, they don’t tender their shares. So they’re not counted as part of the retail reservation – and only those who tender will be counted. So if everyone did tender, we would have seen a 8.7% return – but because of the laziness or lack of action by some small retail holders, you saw a better return.
Oh and while you’re at it remember that this return is only for shareholders who owned less than 200,000 rupees worth shares. Even at 10% post tax that’s only Rs. 20,000 – so it’s not really money that will change your life. The only way you can scale this is if you buy in your family members’ accounts, and that’s possibly a huge mess. Here’s where a good advisor can help, as many of them have. Let’s set the pitch for a lot more such opportunities that will undoubtedly come in the next few months.