Delisting Discussions

I was trying to figure out the how to think about de-listing situations. This thread Special situation (demerger, rights issue, delisting) - checklist has good amount of insight for such special situation.

In summary, a good de-listing case should have 5 things

  1. Valuation comfort at current price: This reduces the downside risk in the case of deal not going through. Hexaware is not at expensive valuation.
  2. Management quality: So that they don’t do all kind of tactics for the deal. Looked for problems in past for Hexaware and Promoters. Nothing grave i could find.
  3. Incentive to delist: If promoters have incentive to delist, they can pay bit higher also. Naresh has captured this very well. HT Global need to refinance its debt and having all the cash-flow of Hexaware would help in that regard.
  4. Shareholding pattern: If professional investors hold large chunk of share, management may be reduced in their attempt to do nasty things. Also the likelihood of deal getting through is higher, if there is concentrated shareholding. True in this case. Large chunk of company is owned by FII and DII.
  5. Floor price: Buy as cheaper to floor price as you can. Obvious one.

One can go through this blog on HT Global’s bond to understand better why there is urgency to de-list shares. If HT Global does not come up with a plan to refinance the bonds by July end 2020, rating agencies would further downgrade the bond. HT Global bonds are 100% of secured by Hexaware shares. As Hexaware share price plummeted and credit rating agencies downgraded bond of HT Global, yield spiked to 21%, Which later came back to its normal level of 7%, as the announcement of de-listing happened and share price of Hexaware jumped back. If the yield remains very high, it would be difficult for HT Global to get it refinanced easily. Hence it is in best interest of promoters to get the company de-listed and thus protect from sharp share price down.

If the deal somehow does not go through, we may see some other mechanisms of cash being sent from Hexaware to HT Global, may be buy the way of special dividend or share buyback.