Are you referring to the QoQ figures? Coz I see that YoY it has shown growth.
Also wanted to understand if cyclicality plays any role here or not.
Looks like that. Stock crashed after conf call.Bad corporate governance? Lesson to other managements that any kind of misgovernance will be to their own peril at the cost of market cap.
How did they get away with this? if the company has bought stake, wonāt it be a part of Investments? How is it that its gone to promoters? Anyone care to explain?
Nice explanation given by a CAā¦must watch
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There seems a wrongdoing on part of management. They are trying to use shareholderās money to increase their personal stake in Finechem.
The structure looks very funny. So Meghmani organics in effect pays for the 25% and giving it free to Promoters. For that it will receive 211 crores extra from Meghmani Finechem where it owns 83% anyways. That is 83% of the money paid back is its own money. The promoters in effect increased their stake from 17% to 43% by paying 17% of 211 crores ie 35 crores for which Meghmani Organics paid 221 crores! Such thieves!! Selling it right away.
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On top of this, these thieves have courage to come to television and say that they have got the legal opinion on such arrangement. Clearly, the laws needs to be strengthened by SEBI and Govt.
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I am stunned by the managementās utter disregard for minority shareholders
This exit to IFL was already provided by Meghmani organics for Rs221cr in April 2018. Ie it purchases 25% from IFL using a wholly owned subsidiary. There is no issues till here. After this Meghmani organics holds 83% in the company.
So what is going to happen is Meghmani finechem will repay 221cr back to Meghmani organics (in effect this means 83% of this money belongs to Meghmani organics anyways) for Meghmani Organis to transfer this shareholding to promoters after which promoters will own 43%. There is also some amount of 211cr which will (most probably not with such Corp governance) be paid in next 10 years by Meghmani Finechem again where Meghmani organics should rightly own 83% and 83% of this amount will be its own. So the consideration promoters will pay is something like 35cr now and 35cr in 10 years to buy 25% stake worth 221crs in April 2018. This definitely ranks somewhere along Satyam. Daytime robbery. The reason given is sillier that Meghmani organics donāt want to own basic chemicals so that it throws it stake away!
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From the hindsight, this looks like a reason for resignation of independent directors.
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Correct me if I am wrong here. Is he assuming that after conversion of OCRPG, MACL shall be 100% WOS of Meghmani Organics and 81% holding of Finechem is going to converge into meghmani organics?
Thatās not gonna happen, otherwise there was no need to create MACL at all. MOL could have infused money directly into Finechem.
In all probability, it looks like that they have taken money from a public company and transfer ownership from IFC to MACL, which is controlled by promoters.
Not holding.
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Yes u r right, they will take 43% stake of MFL, now its looking almost evident as they said on cnbc interview so no doubt about it now.
I am looking into this with a different prospective though. When I bought megh then I have never accounted for the 25% stake in the first place which is the point of concern here. The IFC stake was a bonus in this story(and on the announcement date too stock didnot shoot up a lot or so but now it has over-reacted in a downfall and I am assuming it might not stop at 60 and I will not be surprised if we see 50lvls too), hence no regrets for me. On the company level its working as it should. The only Problem Now I have is that management should have been loyal to the shareholders, they have kept their interest above the company and its shareholders. So according to me short term pain will be for sure but in longterm I dont see a big problem as far the performance is concerned. And I might add more at 50lvls only if it comes
Disc- Invested
one should consider the promoter shareholding in MOL to calculate thisā¦ Promoters own 50% in MOL. Below is my understanding
- In a simple transaction all promoters had to do was get 225 cr for 25% stake and they would have increased their stake to 43%. NBFCs provide funding for promoter buyback (in that case a pledge on cash flows/stock would have been seen as a negative) However the fact that they resorted to such a complicated structure means there is something fishy.
- Effective payment -
Initial 220 cr - Promoters paid 18%*220 i.e their stake in MFL + 83%*50%*220 i.e their stake in MOL which amounts to 131 cr. Therefore the minority bore approx 90 cr
For the repayment of second tranche of 211 cr @ 8% over 10 years - Present Value of 163 cr at 12% discount rate
Promoters will pay 43%*163 i.e their effective stake post transaction + 57% * 50% * 163 i.e their stake through MOL post transaction which amounts to 117 cr
Total Payment = 163+220 i.e 383 cr out of which promoters pay only 131+113 i.e 244 cr
Cant help but ask the question why couldnt the promoters borrow a relatively smaller amount of 225 cr in their personal capacity? May be not to create any pledge on their personal assets or stock ā¦ maybe they dont have enough market cap or personal assets to pledge as NBFCs normally ask 2x cover on stock plus hard collateral
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there is nothing to get confused here . promoter took money from minority share holder .
even in the best case scenario , promoter took 225 cr (consider as loan for better understanding) from MOL & they pay back 43% of (220cr + 211 cr (asuming 211 cr will come back)) which is 185 cr.That still leaves minority share holders with a loss of 225 -185 = 45 cr & a loan which will be paid back in 10 years.
Disc : invested . Not selling but keep track of management behaviour in future .
Meghmani Tanks 18% on Stake Recast Concerns
Rajesh.Mascarenhas@timesgroup.com
Mumbai:
Shares of Meghmani Organics (MOL), a diversified chemical company, declined up to 18% Thursday after the management failed to clear lingering concerns over restructuring during a conference call with investors and analysts.
āWhen asked about the reason for increasing the promoter stake in one of its subsidiaries, Meghmani Finechem, without investing any money from their pockets, the management was evasive during the conference call on Wednesday,ā said Arun Kejriwal, founder & CEO, Kris Advisory. āIt did not explain clearly the restructuring process and that led to the slide in stock prices.ā
The stock almost trebled in 2017 but has declined 42% so far this year. On Thursday, the MOL stock ended at ā¹61.75, down 14.65%.
MOL held 57% of Meghmani Finechem, while International Finance Corporation (IFC) and promoters owned 24.97% and 18.03%, respectively. Recently, Meghmani Agrochemicals Private Limited (MAPL), a wholly-owned subsidiary of MOL, acquired 24.97% equity stake held by IFC in Meghmani Finechem for ā¹221.2 crore.
After this transaction, MOL announced the merger of Meghmani Finechem and Meghmani Agrochemicals by paying back ā¹221 crore to MOL, which was given to Meghmani Agro to buy back the IFC stake.
During the conference call, the management said that the board of directors of MOL has decided against increasing its stake in Meghmani Finechem, and the merged entity will pay ā¹211 crore to MOL with a coupon rate of 8% over the next 10 years. It also said that the promoter holding in the merged entity climbs from 18.03% to 43%, but failed to explain the rationale behind the increase in stake.
An email query sent to the company did not elicit any response until the publication of this report.
In 2008, MOL had brought in IFC, a member of the World Bank Group, as a strategic investor in its basic chemicals business. The fund made an investment of ā¹46.1 crore in MFL for setting up a cutting edge environment-friendly caustic chlorine project using the energy-efficient membrane cell technology. In 2012, IFC further invested ā¹6.9 crore on a rights basis to further expand the capacity of the plant.
The company reported a consolidated revenue growth of 8.84% to ā¹501 crore for the September quarter. Operating profit or earnings before interest, tax, depreciation and amortisation (EBITDA) came in at ā¹116.78 crore, up 13.61% year-on-year. EBITDA margin stood at 23.29%, up 98 bps. Net profit for the quarter came in at ā¹61.79 crore, up 12.11%.
As per my understanding MACL is 100% subsidiary of MOL and the investment is bought by MACL. Now, whether preference share gets converted to equity or not should not effect the % holding of MOL.
On consolidation of financials of MOL, this investment of MACL will be reflected in the financials and preference share capital transaction will get knock off.
So ultimately at console level MOL will have 57% + 25% which belongs to all the shareholders.
I believe there is no fraud in this transaction its only confusion which has been created around it.
Please correct me if my understanding is wrong.
Thanks
This was my understanding too. but MD said that this 25% will go to promoters and
MFL will return the 200 odd crore to MOLā¦ This is bcos as per MD, MOL board does not want exposure of more than 57% in MOL.
In April 2018, IFC was given exit on 25 % stake which was valued @ 221 cr
Valuation prior exit would be as followed:
IFC 25% 221 cr
MOL 57 % 503.9 cr
Promoter 18 % 159.1 cr
How 221 cr is arranged for IFC exit? using spv( Special purpose vehicle ie MACL new subsidiary company formed)
And MOL will provide loan of 221 cr , and MFL uses that money to exit IFC.
Question of bought back 25 % stake to allocate :
MOL board decided to not increase their original stake of 57 % in MFL, so they increased stake of promoter from 18 to 43% ( 18+25)
Now current stake in MFL would be as follows
MOL - 57 % and Promoter 43 %
Resulting valuation
159.1 cr of Promoter becomes 43 % => total valuation of MFL became 370 cr
And 503.9 cr of MOL stake in MFL became lesser by 210.9 cr.
Final Decision :
MFL will pay back 221 cr Loan in March 2019 with 8 % interest.
+
the 211 cr( 210.9 cr - because of 503.9 cr of MOL stake in MFL became lesser by 210.9 cr.)
The 211 cr will be paid in 10 years time with 8 % ineterest rate.
Conclusion : Promoters motive was to increase their own stake from 18 to 43 % in MFL ,when IFC decided to exit their 25 %. If promoter had gone to take loan from Banks, or NBFC they themselves had to pay back.
But , here they introduced very clever financial move to use MFL cash itself is the end of the story.
Forget about MACL( the subsidiary company formed as SPV ) . The whole confusion is around this.
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MOL stake should be calculated at 82% and not 57% and hence the effective value will be 724 cr