More MNCs likely to delist

Corporations to use minimum public shareholding norm as an exit strategy.

A host of blue-chip companies are set to delist as the multinationals are increasingly using the stipulation of minimum public shareholding of 25 per cent to exit from the Indian stock exchanges.

The names include Blue Dart, Motor Industries Company (MICO), i-Flex Solutions, Monsanto India, Alfa Laval, Avaya Global, 3M and Timken India. 

CLOSE EXIT
Company	Promoter holding in %
3M	83.00
Alfa Laval	64.00
Atlas Copco	83.00
Blue Dart	81.00
Bosch Chasis	80.00
FCI OEN	68.30
Honeywell Auto	81.24
iFlex	81.02
Monsanto India	72.00
Timken India	80.00

The Securities and Exchange Board of India (Sebi), through a circular issued in May 2006, had asked the companies to ensure a minimum public shareholding of 25 per cent or opt for delisting before May 2008.

This was aimed at ensuring the availability of floating stock and transparency in the disclosure of shareholding pattern under Clause 40A.

The regulator, however, exempted government companies, infrastructure firms and companies with 20 million listed shares and market capitalisation worth Rs 1,000 crore.

There are about 60 companies in which the public shareholding is less than 25 per cent and another 22 where action in the form of buy-back, open offer or voluntary delisting can be expected in the coming months, said a study by Edelweiss Research.

Some of the companies that figure in the second category include BASF India, Castrol India, Mphasis, Matrix Labs, Henkel India, Ingersoll-Rand and Mysore Cements.

In the last one year, many foreign promoter-held companies made open offers and buy-backs to raise the promoter stake substantially. Once the foreign promoters raise their stakes up to the threshold set by the regulator, they usually go for de-listing.

Thus, the existence of exit mechanisms in the form of open offers and buy-backs seem to be serving their purpose, according to the Edelweiss study.

In the past, several MNC pharma companies were known to have used a similar exit route. The blue-chips could be opting out of the Indian markets to save on the cost of compliance or to keep the profits to themselves, said an investment banker, who wished anonymity.

In the past too, Indian markets have seen several blue-chip exits such as e-Serve (which was bought by Citigroup and is now planning to sell the company at a much higher valuation), OTIS, Wartsila, Reckitt Benckiser, Philips, Aventis CorpScience, ITW Signote and Cadbury.

i-Flex, one of the best market performers in the last several years, is a delisting candidate after Oracle hiked its stake in the Indian company to 81.02 per cent through a series of moves, after it first bought 42.41 per cent stake in the company in November 2005. Out of Oracle's 31 acquisitions across the globe since 2005, only 6 companies are currently listed .

his clearly indicates that Oracle's previous open offer was a step towards de-listing. We expect Oracle to de-list I-Flex Solutions through reverse book-building process, says an analyst with Edelweiss.

Bosch Chassis is another candidate for de-listing. The promoter holding in Bosch Chassis is 80 per cent. The public holding is thus below 25%, which is less than the required minimum public holding under Clause 40A. The company would prefer to opt for de-listing before the May '08 deadline, rather than liquidating its equity.

In the case of Alfa Laval, the decision by Swedish parent to hike the open-offer price clearly indicates its intention to delist from the Indian markets.