The string of open-offers and buy-backs by India Inc is bringing a glimmer of hope for the worried fund managers -- especially in view of the depressing market conditions and plummeting net asset values.
With many domestic companies and multinationals acquiring shares at a reasonable premiums, funds are expected to benefit a lot.
Even if the offer prices are not upto expectations, the anticipation of higher price prior to the announcement of the offers drive up the stock, thus giving a leeway to gain. It has also been observed that a couple of companies had to hike the offer prices as they did not match the ruling market price.
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"A buy-back or an open offer is generally a win-win situation for investors, especially the ones having large holdings," a fund manager said.
Domestic companies are largely aiming at improving shareholder value since share prices stand sharply eroded.
Apart from giving a boost to the stock price, buy-backs help promoters hike their stake to thwart any takeover attempts.
On the other hand, open-offers from foreign parents are targeted at converting the Indian arms into wholly owned subsidiaries.
Eventhough the buy-backs are largely confined to mid- and small-cap companies, which give not-too-huge returns, stocks with reasonable market capitalisation -- such as Castrol and German Remedies -- have hit the market with repurchase offers, which were favoured by fund managers.
Moreover, if due to a buy-back or an open-offer the liquidity of a stock deteriorates, it would not augur well for the investors who do not exit at the opportune moment.
Cadila's open offer for German Remedies had been over subscribed, thanks to mutual funds which wanted to exit from the stock. Cadila had made an open offer to the share holders of German Remedies, subsequent to the acquisition of 27 per cent stake held by AstaZeneca. The over-subscription of the offer indicates that more investors are willing to offload their holdings in the company.
Also Life Insurance Corporation, the Unit Trust of India (UTI) have responded to the open offer of Cadila by tendering their holdings, totaling about 13 per cent.
There are again expectations that Philips will make another open offer. Earlier, during the end of the last year, Philips' parent made an open offer to acquire all 49 per cent outstanding shares of its Indian subsidiary at a price of Rs 105. The open-offer had received a fairly good response with over 30 percent of shareholders subscribing to the offer. The performance of Philips India has not shown much signs of improvement and thus a second open offer is being seen as a good exit opportunity for investors.
In another case, UTI had offloaded 1.44 lakh equity shares of Rhone-Poulenc to Nicholas Piramal India and NPIL Fininvest in response to their cash offer. In case of Siemens' offer also, funds had responded positively.
According to a fund manager, buy-backs have an indirect benefit since they reduce the supply of stock in the market and give more cash to equity investors. He said most Indian subsidiaries of multinationals that made open offers had deteriorating fundamentals and it makes no sense in sticking to the stock.
The string of repurchase plans may not mean too much for most of the funds. Yet, it still provides an incremental boost to the net asset values in a bearish market.