Prabhat Dairy - Special situation 2019

the Assets classified as held for sale, the book value of the same is 1420 cr, doesnt mean the market value is also the same. In the BS if you read the notes, assets that have been transferred are being valued at 1700 cr. so if you take 1700 cr and 658 cr of liabilities then you will get close to 1000 cr. this will have to be adjusted for WC. and obviously if promoter decides to do something funny…

Interesting…

They always said that the “transaction” was completed on 2nd April, 2019 so I assumed money changed hands.

In any case, doesn’t this Arbitrage seems “too good to be true” - I mean, conservatively at 80 Rupees per share, that’s a 50% upside from the close today.

Even after applying a Promoter-Hanky-Panky Risk Premium…

Delisting

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The Delisting offer was quiet the googly.

As per my understanding, a Delisting requires more 2/3rds of the existing public shareholders to concur.

And if their failed EGM was any indication - their shareholders were not happy about this whole “deal”. They will be a tough crowd. Especially the institutions that lost a ton after investing in their IPO.

I think they will need quiet the offer to have this go through. I doubt if offering the 1200 Crores (thats about a 120 Rupees a share) as indicated earlier by their CFO is going to cut it.

The 26 week average price as per SEBI delisting regulations would actually be below the CMP. That certainly is not going to fly.

The plot thickens.

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From: https://economictimes.indiatimes.com/markets/stocks/news/ineos-may-be-first-mnc-to-delist-after-budget-public-float-proposal/articleshow/70780845.cms

"The final delisting price or discovered price will be determined in accordance with the reverse bookbuilding process. The promoter has the sole discretion to accept or reject the discovered price or to make a counter offer.

However, during the delisting offer by the BOC Group to purchase Linde India shares earlier this year, the operational guidelines for delisting were not in place. Hence, BOC Group could not make a counter offer after the discounted price was over Rs 2,000, compared with the floor price of Rs 428.50"

I think the same should apply for Prabhat and if the discovered price is much higher than what they expect, the promoter can counter-offer ??

Floor price of de-listing process has been decided to be Rs 63.77. BSE Filing

That is so unfair. Delisting price is half than listing price.

So first promoter issue shares at 140… Now buy back at 65…

Promoter profit from listing of shares is 75 RS per shares … Wow…what a business

Who knows more about Delisting?

So what happens now that the “floor price” is Rs. 63.77.

As noted above, since the Company was not even able to push through a name-change proposal in a Special Resolution - I deeply doubt if this will be accepted.

What is the Technical Process now?

Floor price doesn’t mean that they will take away your shares at this price.

I am not an expert on the subject but my view is that there is a process of price discovery which they will have to go through. There are many participants including big FIIs whom they will consult. If the discovered price is acceptable to the promoters than delisting will become successful.

Thanks,
Dharmeysh

“The shareholders are requested to note that the Floor Price is not a ceiling/ maximum price. The discovered price will be determined through the book building process specified in Schedule II of the Delisting Regulations. The final discovered price will be determined as the price at which shares accepted through eligible bids during the book building process takes the shareholding
of the promoter and promoter group to 90% of the paid-up equity share capital of the Company, excluding the shares which are held by a custodian and against which depository receipts have been issued. The Acquirers shall have the sole discretion to accept or reject the price discovered pursuant to the book building process.”

Above is from the notice to the special resolution. Request all shareholders to complete the voting.

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Here is the process per my limited knowledge.

  1. Promoters announce de-listing. A board meeting is called.
  2. Board appoints a merchant banker.
  3. Floor price is announced by the merchant banker. Floor Price is the Volume Weighted Average Price on the exchange for the last 26 weeks.
  4. Promoters may announce an indicative price. This is not mandatory.
  5. Merchant banker conducts the Reverse Book Building Process. In this, the MB seeks de-listing prices from all shareholders. The price that satisfies 90% of the shareholders is taken as the discovered price.
  6. The Promoters can accept/ reject/ offer a counter offer to the discovered price.
  7. If they accept the discovered price, then delisting would happen at the discovered price.

The floor price is just data based. Given that promoters of Prabhat have 50.1% holding, the discovered price could be much higher. Take the example of Linde. Even though the promoters had 75% holding, they were held to ransom by a mutual fund that owned 20%. Therefore the discovered price would be dictated by the mutual fund as you can’t have 90% without the mutual fund.

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Daylight robbery going on in this company , wonder what sebi is doing ?

Did you read any of the posts above? Floor price is determined by SEBI process.

The following was requested for posting by Mr. Jigar Amin - who unfortunately is unable to sign up to this website and is trying to sort that out with the Administrator.


Regarding the possibility of passing of this special resolution by public shareholders:

A) From the point-8 in the EXPLANATORY STATEMENT:
…In terms of Regulation 8(1)(b) of the Delisting Regulations, the special resolution shall be acted upon only if the votes cast by public shareholders in favour of the proposal amount to at least two times the number of votes cast by public shareholders against it…

B) Following is the public shareholding as of June-2019:

  1. India Agri Business Fund Limited (IABF) - 14,038,044 14.37%
  2. Societe De Promotion Et De Participation Pour La Cooperation Economique (Proparco) - 8,477,429 8.68%
  3. Vistra ITCL India Ltd - 7,391,226 7.57%
  4. Instituations (FPIs, AIFs, banks, MFs…) - 83,99,720 8.60%
  5. Individial (share capital upto INR 2 lacs) - 60,47,287 6.19%
  6. Individial (share capital in excess of INR 2 lacs) - 21,96,136 2.25%
  7. Corporate bodies - 17,83,230 1.83%

So it will need some 3 crore 22 lac votes (at max) in favour to pass this special resolution by 2/3 majority (not 3/4 as requied in earlier special resolution).

C) IABF nominee director Rajesh Srivastava already mentioned about exsiting, post the business sale process completion, from PDL in an interview in April-2019.
(Agriculture sector may see $12-15 bn investments by 2020: Rajesh Srivastava)

D) IABF & Proparco are the pre-IPO investors who most probably have retrived their invested capital during the IPO, in 2015, by offering less than half their pre-IPO shares. So whatever they get out of their shares now, is pure profit for them. that too probabely without any income tax liability.
Why? As of 31st jan-2018, PDL’s price was in 200-220 range. So that price will be considered as the purchase price (due to grandfathering) while calculating LTCG. Suppose shares are tendered back to promoters anywhere in the range of 100-150 in the successful RBB process, it will still be long term capital LOSS for them (even after 2-4 times profit on the original invested capital). So this delisting will provide great opportunity to both the PE firms (IAF & Proparco) to exit PDL with (i) multifold profits (ii) zero LTCG tax (iii) Claimable LTCG loss for setting off against LTCG gain from other investments in current FY, next FY or future.

E) There would be other public investors (institutional and individiual) who would have purchased PDL shares in IPO. They also have opportunity to exist PDL with (i) getting invested capital back (ii) Claimable LTCG loss (equivalent to 25-50% of the invested capital amount) for setting off against LTCG gain from other investments in current FY, next FY or future.

F) Voting on this special resolution is active from 15-sept-2019 to 14-oct-2019. AGM is on 30-sept-2019. So its very much possible that promoters will indicate or will be forced to say something, by shareholders, about probable price at which promoter will be ready to purchase the shares given (i) probable net proceeds of 1000-1200 crs from the business sale. (ii) no value generated on the IPO price even after 4 years from the listing.

G) For a goodwill, no harm in assuming, promoter might consider returning investors inline with FD investment by showing readyness to purchase shares in the 125-150 range, which will make them lose some 100-150 crs from their share of business sale net proceeds (500-600 crs being their share). I know this is has very low probablity but as said above no harm in considering the possibility.

Considering above points, it seems that the special resolution to delist has good probability of getting passed with 2/3 polled votes of public shareholders.

Regarding the delisting process and probable exit/discovered price:

A) Company has no significant continuing business as of now and 1000-1200 crs net proceeds (as mentioned by CFO in march AGM) post business-sale in the reserve (equal to book value). This makes the intrinsic value of PDL share in the range of 102-123.

B) some voluntary/forced indication of purchase price by promotors in the AGM on 30-sept-2019.

C) From the point-6 in the EXPLANATORY STATEMENT:
The shareholders are requested to note that the Floor Price is not a ceiling/ maximum price. The discovered price will be determined through the book building process specified in Schedule II of the Delisting Regulations. The final discovered price will be determined as the price at which shares accepted through eligible bids during the book building process takes the shareholding of the promoter and promoter group to 90% of the paid-up equity share capital of the Company, excluding the shares which are held by a custodian and against which depository receipts have been issued. The Acquirers shall have the sole discretion to accept or reject the price discovered pursuant to the book building process.

D) From the above point, it seems that Exit/Discovered price will be equal to the highest offer price, starting from the floor price, at which atleast 4 crore 39 lacs shares can be acquired by the promoter in the RBB process. This process has pre-requisite that atleast 25% of total public holding, meaning some 1 crore 22 lac shares, are offered in RBB process, which can be achieved single handedly by IABF offering its stake.

E) If Exit/discovered price is unacceptable to promoters, then they can make counter offer which can be lower than discovered price but equal or somewhar above Book value of PDL. Counter offer can also be higher if discovered price is lower then Book value and promoter want to show goodwill by sharing atlast book value with public shareholders.

F) RBB process would start only after resolution is approved by public shareholders, receipt of in-principal approval from exchanges, public announcement and letter of offer. All these might easily take 3-9 months depending upon how fast application for the in-principal approval is made to exchanges. Exchanges are supposed to clear such application in 5 working days. public announcement is be made within 1-2 days of receipt of in-principal approval from exchanges.

Considering above points, it seems that (i) individual & institutional public shareholders, holding some 16-20% shares, shoudn’t and won’t tender their shares in the reverse book building below 115/- (IPO price). (ii) PE firms shouldn’t & wont’t tender their shares in the RBB process below the book value of PDL post the business sale unless they collude with promoters and chances of collusion is less because PE firms will keep investing in Indian markets and they cant risk their repution for some collusion.

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Any updates on delisting ?

Prabhat dairy is raising 200 Crore for working capital requirement by the way of private placement. Currently company only have nominal business activity remaining. As I remember that they could not get approval for change in business nature. The instrument is for 18 months and carries an interest rate of 9.9% compounded monthly (10.36% Yearly rate). It seems company meanwhile is starting the business activities for cattle feed segment. Till this issue of de-listing gets resolved.

Or is it an attempt by company to siphon out money? It looks this private placement could be issued to promoters or their nearby people at the expense of minority shareholders. No idea.

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They have again come out with scheme of amalgamation, when they going to sort out issues and are we going to get any benefit out of it? Or we are better off selling the share?

Any experienced member who can throw some light on such issues, who has better understanding of delisting or such scheme of amalgamation. Thanks

Looks like they had filed the merger based on Section 233 of the companies act which was rejected and they are filing it under Sections 230 - 232. Looks like procedural issue but no mention of buyback and any timeline. Or how they will be giving out the sale proceeds. Now since DDT is removed from company side, they can very well pay the proceed as dividend. Promoter holding is under trust so they will have less tax hit.

Do you have a contact number or email id to which they respond ?

As you said rightly no mention of buyback or special dividend, keeping the investors in dark, though can’t expect anything from them.

Your thoughts on holding it, if yes till when ?

cs@prabhatdairy.in
investor@prabhatdairy.in

In the past they have replied to the above mail ids, but last few months I have not contacted them because it clouds our judgement with their positive statements.

I actually invested in Prabhat few years back when the promoter used to come to CNBC18 regularly and in one interview hinted that they could increase promoter stake by buying some part of the PE exit stake. Choice at that point was between Prabhat and Parag (which had/has its own share of corp governance issues). Sadly should have gone with Hatsun Agro in hindsight but did not consider due to its “high” valuation. Learned my lessons. Didn’t consider Heritage because of the political links.

Regarding holding, I am still holding my original position (which is down 20% in price) but had bought a bit more when the stock had hit lows and then sold when it came to 70. I am still hoping that the presence of the PE investor would prevent the promoters from carrying out any fraud like LEEL. Delay is there no doubt which has its own opportunity cost. We all have to take our own decision regarding holding/selling.

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