Investors jittery on possible delisting of top Indian stocks.
R Chandrasekaran
The United Kingdom-based multinational company Unilever Plc.’s intention to hike its stake in Indian company, Hindustan Unilever, raises at least two questions among Indian investors. One is whether this is a prelude to delist the Indian company’s stock from Indian bourses and the other is who are the other companies to make a similar offer in the near future?
The Britain company announced an open offer to increase its stake in Hindustan Unilever to 75 percent from the current 52.48 percent by offering a 20.6 percent premium over the April 29 closing price in Indian bourses. For this, Unilever intends to spend a maximum of $5.4 billion to lift its stake. Following this, the company’s stock spiked close to 20 percent at one point of time in Indian stock exchanges. The move also comes on the heels of GlaxoSmithKline Plc.’s recent hiking of stake in its Indian subsidiary by offering significant premium.
The potential motive behind the parent company also provides an indication that it may not be averse to sweetening the open offer price to get the wanted number of shares so as to allow them to execute their plan. One such plan could be a delisting from Indian stock exchanges. Why should they delist and what made them to come out with an open offer when Unilever is already controlling the company?
India is undoubtedly one of the biggest developing markets. Multinational companies such as Unilever might prefer to hold 100 percent stake in outside their home turf for variety of reasons.
One possible reason could the increasing compliance of regulatory filings and the shareholders growing concern on growth. Also, the parent company might have preferred to close the deal before the stock market rebounds in the next few quarters or years as the cost of hiking stake may only increase in the coming years. The company has also not raised any fresh equity from the domestic markets and it has enough cash to meet its expansion plans. Therefore, there is every possibility that Unilever might think that there is no significance attached to the listing. The company could also escape from the financial media scanner, which believes that the stock is expensive.
As a parent company, Unilever sets its plan and wants its subsidiaries to achieve them as part of their long-term goal. This could be lower than investors’ or analysts’ estimations. Though the company has not disclosed its opinion on delisting, the delisting could allow it to pursue its own strategy on India without bothering about domestic investors’ interests.
After GlaxoSmithKline, now Unilever has joined the list. Will the list end or keep increasing is another question that is haunting investors’ minds. What are the potential companies to join the list? IDFC Securities’ Managing Director Nikhil Vora has reportedly told a television channel that Colgate and Nestle could join the list with pharmaceutical companies also joining the race. The money taken out from Hindustan Lever might likely to land in other FMCG companies such as ITC or Godrej.
The stock markets hold key in other MNCs taking a decision to hike its stake now or at a later stage depending upon their cash pile.
To contact the author, e-mail: rchandrasekaran@americanbazaaronline.com