Kolkata: The recent cabinet decision to give state-owned Rashtriya Ispat Nigam Ltd (RINL) that runs the Vizag Steel Plant (VSP), control of steel ministry-administered iron ore miner Orissa Minerals Development Co. Ltd (OMDC) has led to a scramble for the latter’s shares. Investors are betting on RINL acquiring more shares from the market, either through an open offer or otherwise to make OMDC a subsidiary.
Investors in Kolkata, Mumbai and Ahmedabad are currently offering up to Rs25,000 each for OMDC’s shares carrying a face value of Rs10 and listed only on the Calcutta Stock Exchange (CSE), according to at least half a dozen people who have received offers.
No takers? The Calcutta Stock Exchange. OMDC’s shares were last traded here in 1985 at Rs3.75 apiece. Indranil Bhoumik / Mint
For about 24 years, there has been no trading in OMDC’s shares on the floor of CSE because of poor liquidity—only 207,420 shares, or 34.57% of the OMDC’s 600,000 shares, are widely held. The firm has an equity base of Rs60 lakh.
OMDC’s shares were last traded on CSE in 1985 at Rs3.75 apiece, according to Molly Thambi, the bourse’s managing director and chief executive officer. Till recently, investors were holding most OMDC shares in physical form.
Since the shares are not being traded, investors are buying OMDC’s shares through off-market transactions.
CSE authorities are encouraging brokers to restart trading in OMDC’s shares on the official trading platform of the exchange, called C-Star. If all goes well, trading in OMDC’s shares on C-Star should restart from Saturday, said Thambi.
The exchange has decided that there will be no circuit filter, or restriction on price movement of OMDC’s shares, on Saturday. However, no speculative trade will be allowed, and each trade will have to be settled.
Stocks traded in the derivative segment do not have any restriction on price movements, but others have a limit of 5%, 10% and 20% for daily gains and losses. The bourses decide from time to time the price band within which individual stocks can be traded, depending on their volatility, volume of trading and other factors.
“Brokers planning to sell OMDC’s shares on Saturday have been asked to deposit shares with the exchange by 5pm on Friday to make sure that there is no speculation and no shortfall in securities pay-in,” Thambi said. “Brokers buying shares will have to pay 100% margin.”
Though there was no official trading, shareowners could always sell OMDC’s shares through off-market transactions at Rs8,000-10,000 a share, said a Kolkata-based stockbroker, who owns about 200 shares of OMDC, and declined to be named. “Typically such offers would be made immediately before the company announced its annual dividend,” he said.
For the past few years, OMDC has been paying a high dividend. For fiscal 2009, it paid a dividend of Rs455 a share, and in fiscal 2008 and 2007, it paid Rs372 and Rs434 a share, respectively.
Though there’s been no trading on the official platform of CSE, “there were huge off-market transactions in the past few years”, Thambi said.
But the price has gone up sharply following the government’s announcement that the firm would become a subsidiary of VSP. “It seems investors are snapping up shares expecting an open offer from Vizag Steel,” the stockbroker, quoted earlier, added.
Any entity acquiring over 15% stake in a listed company is required to make an open offer for at least 20% more.
It is, however, not clear whether RINL will have to make an open offer for taking over OMDC. RINL’s chairman and managing director P.K. Bishnoi, who is also the chairman of OMDC, was travelling and could not be contacted. A company spokesperson said RINL would not able to comment on the matter until Bishnoi returned.
OMDC officials also refused to comment.
Jayant Thakur, a chartered accountant and an expert on takeover rules, said the transaction could be exempt from takeover regulations and RINL might not have to make an open offer because the shares are being transferred to a state-owned company. However, if RINL buys the government’s shares in OMDC, the transaction could be seen as disinvestment and would trigger an open offer.
The government has said OMDC would become a subsidiary of RINL, which means the latter will have to raise its stake in the miner by at least 2% to over 50%. The government currently holds 48.18% in OMDC—14.2% directly and 33.98% through Eastern Investments Ltd, a firm that was nationalized in the early 1980s.
Under the restructuring plan approved by the cabinet last month, RINL would be given control of Eastern Investments, and through it OMDC as well, which would eventually become the steel company’s subsidiary.
Besides expectation of an open offer from RINL, OMDC’s shares gain strength from the company’s fundamentals. OMDC has reserves of around 200 million tonnes (mt) of high grade ore in six mines in Orissa. In fiscal 2009, it produced 1.66 mt of iron ore and posted a net profit of Rs181.81 crore on a turnover of Rs291.71 crore. Its net profit translates into earnings per share of Rs3,030. The company also has Rs718 crore in cash balances, which translates into a cash per share of almost Rs12,000.
OMDC seems to be looking forward to the proposed restructuring. Its annual report for 2009 says both RINL and OMDC would benefit from the restructuring. RINL would gain access to iron ore reserves and OMDC would benefit from the steel maker’s financial and administrative support.