Thursday, July 27, 2006


- by Kuppusamy Chellamuthu

No activity off late in this as it was in the market for retail investors.
Drying volumes, beaten down prices, no cash to buy… none of them was surprise & new. Most hit was the primary market where quite a few companies pulled back their IPO plans and rest that dared got poor response.

Past few days sentiments apparently getting back. However every adverse reason that prevailed a month back still remains intact despite the fact that some of quality stock s available at comfortable valuation. I would love to see the market at the same levels or even further slide. That would give me a long stretch of consolidation period with few more paydays ahead. If buying stock at cheap valuation is the motto of investing, we have every reason to rejoice bear domination. But a bear can last anywhere between a minute to couple of centuries. DJIA was at the same levels in 1964 & 1981, 17 long years. Japanese index fell all the way from 30 thousands points to 4 digits.

You rarely know whether your date is expensive or not. A fancy girl can make a fatty credit-card bill for you to pay for months. As a matter of fact, it is rarer to predict the markets than a fancy girl.

Infrastructure major GMR ventures to tap the primary market, though with a reduced price band. It is learnt that George Soros' Quantum fund and ICICI ventures have taken sizable stake at the price higher than the propose price band. That does not assure anything at the outset for an investor. If this issue gets good response especially from retail segment, it might probably revive primary market sentiment. That should be a good news because that is the only money injected into companies' balance sheet and projects, indirectly fuelling economy. Secondary Markey irrespective of its rise & fall does not have direct influence on economy, except causing fluctuating income for brokers and traders.

GMR is the major stake holder in Hyderabad international airport and modernizing Delhi airport. Interestingly it own hundreds of acres of land around these 2 airports. Company is also into other infrastructure and power generation activities. That makes one interesting. However looking at Fy-2006 earnings its IPO price is at mammoth valuation of around 90 times. Leave the bal to the keeper & wait???

Thursday, July 06, 2006

Tata steel questions

People might have heard of events happening around Tata steel camp.

Promoter’s holding company Tata sons has decided to increase its stake in Tata steel through preferential allotment and warrants route. Though we understand it is intended to shun any potential hostile bid by steel baron Mittal, what I fail to understand are……

1. If injecting further money into the business was the motive, why can’t they go with all out preferential issue rather than some amount of warrants?
2. I hope warrants are another form of options (like ESOP for executives) where in promoter does not need to shell out money immediately, but with a premium (like a call or put option) at the time of Warrant issue. Given these assumptions being true, what would probably be the exercise price as pronounced by ‘SEBI prescribed price formula’?
3. This question is not directly related to Tata steel, but with games played around convertible warrants. Does any one have a clue on what the price determination formula that SEBI prescribes for an unlisted company is? Has anyone closely followed DLF case where minority shareholder was apparently betrayed by the greedy promoter? Are there any similarities between DLF and Tata steel warrants? If the real motive is to raise money, why can’t Mr.Ratan Tata provide warrants for every Tata steel shareholder instead of Tata sons?

The news item (from Hindu business line) is below for reference.
Separately, Tata Steel informed the BSE that it would issue on preferential basis 2.70 crore ordinary shares of Rs 10 each at a price of Rs 516 per share for Rs 1,393.2 crore to Tata Sons.
Also proposed were 2.85 crore warrants, each entitling Tata Sons to subscribe to one ordinary share of Tata Steel against cash payment. The promoter company would pay Rs 51.60 per warrant on allotment; Tata Sons can exercise its option after April 1, 2007but not later than 18 months from the date of issue, in accordance with SEBI prescribed pricing formula.
"You may ask why this injection of funds (Rs 6,500 crore ) is not being made as a rights issue to shareholders. The main reason for that is - through an overseas issue we can perhaps obtain prices that are close to market prices today, which, we would not be able to do in the case of shareholders who would justifiably want a discount, and a substantial discount from market value. This we will consider in time as we always have. But if we want to hold dilution to a minimum and protect existing shareholders, we expect to raise these funds in a manner that it will not exceed 15 per cent of the prevailing paid-up capital of the company.