I was approached to buy some unlisted shares of Sterlite Power Transmission Ltd (SPTL) & then was astounded when told an offer had already come in for Rs 270 already!
So what’s the Big Issue ? ~ How Can the Value of unlisted SPTL change dramatically upward by over 300% from Rs 112.30( as on March 31, 2015 cut off date) that the company offered for in the demerger of STL and paid in August 2016 & just eight months later value the same at R s 464.46 ! on March 2, 2017 when they announced an EGM for March 29, 2017 to issue new shares! (Details Below)
It’s thus to do with the low Valuation of unlisted SPTL as on cut off date March 31, 2015 that was the subsidiary of listed STL that got the Power Division of STL in the Demerger & then ceased to be a subsidiary post demerger.
Haribhakti & Co LLC did the valuation on a NAV (for Holding Co) & Income DCF Approach (for Operations) at a maximum of Rs 111.50 /share.Price Waterhouse & Co LLC also used similar Valuation approach and got mariginally higher Maximum Valuation of Rs 112.30. Both had valued SPTL below Rs 900 crs only! despite Income Approach having to consider Potential of Scale Operations in coming years.Both Valuation Reports are dated May 18, 2015 in sync with STL Board Meeting Date as below. STL has gone with PWC
These are the relevant Dates & all relevant documents for Shareholder/Court/Exchanges Permissions & Approvals can be found here :
May 18, 2015 ~ Board of STL in a corporate restructuring decision approves the Scheme of Arrangement between the Demerged Company STL & Resulting Company SPTL (then subsidiary of STL) effective date April 1, 2015. Decides to keep SPTL unlisted unlike the Adani Group that listed Adani Transmission after their restructuring exercise
December 15, 2015 ~ Court Convened Meeting of STL Shareholders passes the Scheme
April 22, 2016 ~ Mumbai High Court issues an Order approving the Scheme
May 23, 2016 ~ Order becomes effective on date of filing with Registrar of Companies
June 15 & 16, 2016 ~ STL begins ex demerger quote on June 15, 2016 as Company has set June 16,2016 as record date for STL shareholders entitled to receive Demerger benefits of SPTL.SPTL ceased to be a subsidiary of STL on this Demerger & it was decided to keep it unlisted unlike the Adani Group which demerged & listed Adani Transmission.
June 27, 2016 to August 8,2016~ Election Date Range for @ 122000 shareholders in STL up from under 120000 shareholders at June 30,2015 when the Demerger plans were announced in May 2015 and I wrote a detailed blog post in July 2015 (see later below) .There were two options for Resident Shareholders ~ receive Equity Shares of SPTL at Rs 112.30 (FV Rs 2) in a 1: 5 ratio for shares held in STL or go for the 8% Preference reedeemable shares of Rs 112.30 in the same 1: 5 ratio that would be reedeemed at Rs 125.55 in eighteen months from allottment. FPI/FIIs?Non Resident shareholders had to sell their shares back to the Promoters or their affiliates.
Many shareholders would would have opted to receive the Preference shares option in the Demerger rather than the Equity shares of unlisted SPTL led by the fact that it was to remain an unlisted company & misled by the low valuation of SPTL showcased at the time by STL & done by top names.
Gauging from the June 30,2016 Shareholdings of STL & the current Shareholding of SPTL,I sense that more than half at nearly 55% of the Public Shareholding of STL & in my guestimate over 60000 shareholders opted to receive the redeemable Preference shares of SPTL at the time of the demerger and exit on maturity at Rs 125.55 ! That’s a huge Number. I am quite sure the Promoters of STL opted for the Equity Shares of SPTL. They also must have benefited from the fact that FPIs/ FIIs/ NRIs who opted for the Equity Shares in SPTL had to compulsorily opt to exit SPTL by selling these Equity shares to the Promoters or their affiliates at Rs 112.30. The SPTL Balance Sheet shows 1.79 cr outstanding redeemable preference shares => At Rs 464.46 Valuation now over the Demerger Valuation nine months ago at Rs 112.30 or even the Redemption Maturity Value of Rs 125.55 it translates into an Opportunity Lost of over Rs 600 crs
March 3, 2017 ~ Just Eight Months later! ~ EGM Notice to SPTL Shareholders ~ Rs 464.46 ! Value of SPTL Shares as valued on March 2,2017 & in the proposed allotment of shares by SPTL to three private equity groups registered with SEBI as Foreign Venture Capital Investor (FVCI) ~Standard Chartered Financial Holdings,Mauritius & Standard Chartered Private Equity Korea III Holdings Ltd & Marina Hari (IV) Pte Ltd, Singapore in non cash conversion and consideration of their original Investment of @ Rs 455 crs through Equity Shares & Optionally Convertible Preference Redeemable Shares (OCPRS) in Sterlite Power Grid Ventures Ltd (SPGVL).SPTL holds a diluted 71.59 % in SPGVL & with this acquisition of the FVCI Private Equity Holdings in SPGVL it will make SPGVL a wholly owned subsidiary of SPTL. Also it would mean that the Private Investment of the three FVCIs as above is converted from Holding company SPGVL directly to Operational Company SPTL & on full dilution these three FVCIs will hold a 25.92% Equity Stake in SPTL causing Promoters stake to drop from current 76.12 % to 56.4%
This is the Investment Holdings of the three SEBI Registered FVCIs pre & post the above proposal
|FVCI||Equity Shares to be issued by the Company to the relevant Investor||Non-Cash Consideration (in form of Equity Shares of Sterlite Power Grid Ventures Limited (SPGVL)||OCRPS to be issued by the Company to the relevant Investor||Non-Cash Consideration (in form of OCRPS of Sterlite Power Grid Ventures Limited (SPGVL)|
|1||Standard Chartered Financial Holdings,Mauritius||17 Equity Shares of Rs. 2/- each||365 Equity Shares of Rs. 10/- each of SPGVL||37,38,793 OCRPS of Rs. 6/- each||7,93,82,674 OCRPS of Rs. 10/- each of SPGVL|
|2||Standard Chartered Pvt Equity Korea III Holdings Ltd||46 Equity Shares of Rs. 2/- each||986 Equity Shares of Rs. 10/- each of SPGVL||1,10,24,021 OCRPS of Rs. 6/- each||23,40,63,875 OCRPS of Rs. 10/- each of SPGVL|
|3||Marina Hari (IV) Pte Ltd,Singapore||31 Equity Shares of Rs. 2/- each||649 Equity Shares of Rs. 10/- each of SPGVL||66,45,859 OCRPS of Rs. 6/- each||14,11,06,004 OCRPS of Rs. 10/- each of SPGVL|
|Total||94 Equity Shares of Rs. 2/- each||2000 Equity Shares of Rs. 10/- each of SPGVL||21,408,673 OCRPS of Rs. 6/- each||454,552,553 OCRPS of Rs. 10/- each of SPGVL|
March 23, 2017 ~ SPTL announces the postponement of EGM to have been held on March 29,2017. New Date yet to be announced
I am a bit perplexed too on the Valuation & Consideration Mathematics as above would indicate a Value of Rs 212.32 per share considering that the SPTL OCRPS terms show that at least one Equity share of FV 2 has to be issued on option to convert being exercised & the fact that in 2014 Standard Chartered had committed to invest US $ 83 m or near Rs 500 crs at par in SPGVL. Yet the EGM notice states the Issue of Shares by SPTL to FVCIs as above will be at Rs 464.46.Maybe I’ve missed something.But that’s not the point of this blog post anyway
The SPTL EGM notice to justify Rs 464.46/STPL Share price to issue new shares, while referring at several places to a Valuation Report from a registered Valuer, it does not mention who the Valuer is. SPTL Website does not hold this Valuation Report as it is not a listed company and does not have to comply with more stringent Exchange & SEBI regulations for listed companies. Is it Haribhakti & PWC again ? If so,it would be really interesting how their Valuation galloped over 300% in quick time from Rs 112.30/share & overall under Rs 900 crs as on March 31, 2015 to Rs 464.46/share & overall over Rs 3800 crs as on March 2, 2017!
How Many STL Shareholders got short circuited on the Demerger
Lets suppose you held 100 shares of listed STL on the demerger record date of 16/6/2016 at your cost of Rs 100 & thus investment of Rs 10000 & were mislead by the low valuation(Haribhakti & PWC) of Rs 112.30 per share of SPTL & the fact that there will be no listing of SPTL & you opted for the redeemable preference share instead of the equity share of SPTL at Rs 112.3.You would have been alloted 20 SPTL Preference shares and will get on maturity Rs 125.55 per share=> Rs 2511.You yet hold the 100 STL Shares which currently quotes @ Rs 145.Thus your value of the original Rs 10000 investment will be Rs 14500 (100 STL Shares) + Rs 2511 (20 SPTL Preference shares)= Rs 17011….not bad at over 70% returns
Yet consider this if you had wisely opted to receive 20 SPTL for Rs 112.30 your Investment of Rs 10000 would today notionally be Rs 14500(100 STL Shares) + Rs 9289 ( 20 SPTL @ Rs 464.46) => Rs 23789 & that’s nearly 140% ….even if you consider a lower Rs 270 as the unlisted quoted price for SPTL the total comes to Rs 14500 + 5400= Rs 19900 or @ 100% gains
SPTL Quote considered separately of course shows a huge over 300% surge from Rs 112.30 in August 2016 to Rs 464.46 as per Company Valuation & over 140% at Rs 270 as per unlisted markets
You as a STL Shareholder, who opted for the Preference Shares instead of the Equity shares, in SPTL just nine months ago in August 2016 has been short circuited as recent events & developments suggest that there is more than meets the eye on the SPTL share valuation at the time of the Demerger !
This is more than a serious Corporate Governance Issue in my view. I have always had issues with Corporate Governance in the Sterlite Group right from the time cash rich & debt free Sesa Goa was merged into the group company and it’s cash was used to fund a stake in Cairns
I really am all three emotions wrapped up in one on this one ! ~ Happy, Sad, Angry
Happy ~ for those STL Shareholders who just nine months ago in August 2016 were wise to choose to get the unlisted SPTL shares which were allotted in a 1: 5 ratio & at a value of Rs 112.30 per share in the Demerger.The Value in unquoted I’m told is Rs 270 & SPTL itself values it now at Rs 464.46 !
Sad ~ for those STL Shareholders who opted unwisely to receive the 8% Redeemable Preference Shares of Rs 112.30 in same 1: 5 ratio & who will get Rs 125.55 on maturity after eighteen months after allotment unless they sell/sold it in the secondary markets as this is listed.Surely they would have been wiser had they read my July 2015 elaborate blogpost(linked below) on this.They need to inquire of STL Board & Promoters why such a low SPTL Valuation just nine months ago & what existing & potential information was withheld from them so their decision to opt for the redeemable shares became a less winning & therefore a wrong one
Angry ~ at the Sterlite Vedanta Group & it’s Promoters & Top Management & the Valuers for valuing SPTL Rs 112.30/share & under Rs 900 crs & building up a case that Shareholders were better off getting the Rs 125.55 on the Preference Shares rather than the Equity share at the time of demerger as the Company would be unlisted with a long gestation period for it’s projects & operations before it bore fruit.It’s evil
I had clearly spelled out on July 17,2015 itself in my blogpost what will unfold and that Shareholders of STL should not opt to receive the Preference Share that would be redeemed but to go for the Equity shares of SPTL in the demerger, even if unlisted as they would recover the monies from the surge in STL price itself . This is exactly that has played out .
Here’s that comprehensive blogpost below for easy reference. Do read it to get a sense of what I sensed Sterlite was up to !
So what is the Real Value of SPTL ?
Well,listed Adani Transmission has soared to Rs 85 & a Market Cap of @ Rs 9400 crs and boasts of being India’s largest Private Power Transmission Player with 5450 ckt kms lines in Operation,1900 under development & 3500 under acquisition with MOUs in place
Unlisted (as yet) SPTL too boasts of beings India’s leading Private Player in the Transmission field .It’s fully diluted Equity of FV Rs 2 would be @ Rs 16.50 crs comprising of @ 8.25 cr shares.At Rs 464.46 it would be valued just over Rs 3800 crs.At Rs 270 the value drops to just over Rs 2200 crs.Yet much higher in quick time than the under Rs 900 crs valued by Haribhakti & PWC as on March 31,2015.There are fresh Shareholder agreements between SPTL & the FVCIs .The Original Ones of 2014 between Holding Company SPGVL & the FVCIs was till 2019 and one of the exit routes specified was an IPO ! ~ & here we had the Vedanta Founder Anil Agarwal saying SPTL would be unlisted in his Annual Report Statement ….what if it does get listed in the next few years !.It’s current and potential capacities are in marching along with those of Adani Transmission….and btw listed STL at Rs 145 has a Market Cap of Rs 5800 crs
In my view the Vedanta Group & it’s Promoter,Anil Agarwal would have won a Fairplay Award if at the time of Demerger of STL,they would have simply offered Equity shares of SPTL to the STL Shareholders rather than give them one more option of redeemable preference shares ,just because they had decided not to list SPTL & thus provide an exit route !~ Instead with such a huge rise of over 300% in unlisted SPTL Valuations from Rs 112.30 to Rs 464.46 in real quick time by Company’s own Valuation it leaves more than a bitter taste for those who opted for the redeemable shares.They have a strong reason to suspect low valuations at the time of the demerger when they had to decide their choice of shares just nine months back .They have a strong reason to raise their Voice….as I daresay,SEBI too must do.Something is not right here!
STL Shareholders have already been injured & adding insult to this would be if SPTL actually launches an IPO in the near coming years at a very High Price !
Clearly just re-naming the Sterlite Group as the Vedanta Group after one of India’s sacred & spiritual Hindu philosophies does not make the Group a sacred & revered one
Guys ,what do you make of this !? Do you sense I’m making too much of this & it’s just a coincidence that the Power Sector fortunes have taken off in recent times for both listed & unlisted entities in the sector & unlisted SPTL is just a happy beneficiary of this & deserves much higher Valuations & that it’s not a pre-planned & pre-meditated exercise to have deprived over 60000 Minority STL Shareholders of SPTL Shares by not listing them & offering a low valuation exit option just nine months ago in August 2016 ?
Convince me it’s just Co-incidence & I’m ready to change my View but don’t tell me those over 60000 minority shareholders had two choices & they exercised a less winning one ! ~ the question is whether they were deliberately guided to do so
Disclaimer : STL was one of my fundamental selects way back in 2012/13 at Rs 30 levels,despite Corporate Governance Issues that continue to challenge me in the Vedanta Group.The Interest had stayed till 2015. I loved it’s potential & it has lived up to it.STL regularly features in my Training sessions on Valuation when I explain Demerger Situations .However neither my family & me have any Investment in listed STL or unlisted SPTL either at the time of Demerger in August 2016 or now nor have I received any compensation from anyone or expect to for this blogpost which is solely the expression of my views on the subject matter.