What We Should and Shouldn’t Take Away from Vedanta’s Delisting Failure

A final answer should be given on this tale of technical glitches and unconfirmed bids.

The offer made by the promoters to delist the shares of Vedanta Ltd. has fallen through.

There are multiple ways to read this, even if each individual perspective doesn’t give the full picture. Does it reflect a sense of confidence in the company by the shareholder community? Or, does it indicate poor judgement on the part of the investors?

As analysts scratch their heads to understand why the delisting offer failed at the eleventh hour, a few questions have begun to be asked on how the entire process played out.

The delisting was sought to be done through a process of ‘reverse book-building’. Under this, the company concerned decides on a floor price. This price is then widely communicated to the shareholders. Thereafter, stock exchanges step in to facilitate the process of reverse book-building via an online bidding system. Shareholders then communicate their bids through the trading members (brokers, to be precise). The buy-back price will eventually be determined after the offer closes. Once this buy-back price is arrived at, all bids or offers equal to or below this price will be accepted.

There is a rider, though. The offer becomes successful only if a minimum number of shares are tendered.

In this instance, at least 134.12 crore shares are required to be validly tendered for the delisting offer to be declared successful. Only at that level, the promoters’ holding could breach the 90% level as required by the rule in a delisting exercise.

Till the final lap, it was assumed that the Vedanta offer would sail through. After all, public shareholders tendered 137.1 crore shares. The total public holding was in the vicinity of 169.73 crore shares. The story was playing out fairly on the expected line for the most part of the final day of the closure of the offer, i.e. October 9.

But it turned topsy-turvy later in the day as the evening approached. The explanation being put forth is that a technical glitch in the tender process perhaps gave the game an unintentional result.

The rules say that the offer must have closed at the close of the trading hour. But technical hiccups earlier in the day, on account of which some shareholders reportedly faced trouble in tendering shares, forced the authorities to extend the bidding time till 7 pm.

By 7:35 pm, the BSE website indicated that only 125.47 crore shares were confirmed to be tendered. That means that 12.31 crore shares weren’t confirmed. This deficit in eventual bids turned the delisting offer into a failure.

A man walks past the Bombay Stock Exchange (BSE) building in Mumbai, India, March 6, 2020. Photo: Reuters/Francis Mascarenhas/File photo

India Inc has a number of examples of delisting offers having met with failure and thus this is nothing new or shocking. The issue with Vedanta though, is that the way the process played out has raised some questions.

J.N. Gupta, the co-founder of the proxy advisory firm Stakeholder Empowerment Services, is surprised. Not because the offer fell through, which would be fine. But what has caught Gupta and his ilk totally off guard, is the non-confirmation of bids worth 12.31 crore shares.

“If you have put in a bid, why haven’t you confirmed it?” asks Gupta.

Non-serious bidders are a dime a dozen in any bidding exercise, especially when it comes to project tenders – India’s power sector is a classic example. Such bidders enter the fray just to scuttle the whole process.

The question now being asked here is whether the technical glitch was the only reason behind any non-confirmation of bids. For instance, one question being asked is that if technical problems were the reason, why didn’t they confirm even when the authorities had extended the bid timing beyond the normal trading hours? Who are these bidders who failed to confirm? How much holding do they control together?

At the moment, the only thing that is known officially is that the delisting offer has failed. The onus is now on the authorities – the stock exchange mandarins and the market regulator – to give a final answer.

Had the delisting offer gone through, it would have helped the investor community make a reasonably satisfactory exit from Vedanta. With institutional investors such as the LIC quoting over Rs 300 a share, the final discovery price would have been far higher than the offer price announced by the promoters.

In the end, the non-confirmation of a sizable number of bids appears to have poured cold water into the whole delisting exercise. What went wrong? Media reports indicate that capital markets regulator SEBI may ask the BSE to probe and get to the bottom of the matter, an exercise whose results will no doubt be keenly watched.