ELCID DELISTING: At a FAIR PRICE?

Elcid Investments Limited (“the Company” or “EIL”) is a non-banking financial company (NBFC) registered with the Reserve Bank of India (RBI) under the category of Investment Company. The Company’s activities primarily comprise of investing in listed and unlisted equity shares, debt instruments of companies and in mutual funds.

As on 31^st March 2022, the Company along with its wholly-owned subsidiaries is holding 4.23% Equity shares of Asian Paints Limited having fair value of more than Rs. 12,000 Crores. EIL is also the promoter of Asian Paints Limited. Promoters holding in EIL is 74.98% out of which Vakil Family holds 74.88% who are also the founders and promoters of Asian Paints Limited.

Shareholding pattern as on 31^st March 2022

The company has paid-up capital of Rs.20 Lakhs only, divided into 2 Lakhs equity shares of Rs.10 Each. Shares of the EIL were traded last time on 14th September 2021 on BSE.

Delisting offer by the Promoters

On 19^th March 2022, promoters viz. Dipika Chemicals Private Limited, Dipika Vakil, Varun Vakil and Amar Vakil made an initial public announcement to the stock exchange pursuant to Regulation 8 of Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2021, (“Delisting Regulations”) expressing the intention to acquire all the equity shares held by public shareholders and consequently voluntary delist the equity shares of Elcid Investments Limited from the stock exchange from BSE with Reverse Book Building. Even though the intention of the promoters is to acquire “All” i.e., 100% shares held by public shareholders, the same is not condition precedent for the delisting.

After making Initial Public Announcement, in accordance with Regulation 10 of Delisting Regulations, the Board of Directors of EIL in their meeting held on 28^th March 2022 approved the proposal for delisting stating and now the company is seeking the consent of the shareholders through postal ballot/e-voting in accordance with Regulation 11 of Delisting Regulations.

In compliance with Regulation 20(2) of Delisting Regulations, Promoters informed the Company that the floor price determined for the Delisting is INR 1,61,023 per share.

EIL’s current market price per share is circa INR 17 translating to a Market Capitalisation of circa INR 34 Lakhs and EPS of Rs. 3383.39 per share. If we consider the investments of EIL, the intrinsic value per share will be more than Rs.6 Lakhs per share. Considering the intrinsic value, shareholders can bid for a higher price to ensure that discovered price should be higher. If the shareholders are of the opinion that the discovered price will be less than their expectations, they can continue to hold the shares.

Pursuant to Regulation 21 of Delisting Regulations, if the promoters of the Company are successful in acquiring at least 90% equity shares and if the discovered price through reverse book building is accepted by the promoters, delisting will be successful.

Even though promoters are offering higher prices, considering the underlying asset available with Elcid, public shareholders may or may not tender their shares or may expect a higher price.

Pursuant to Regulation 26 of the Delisting Regulations, if any shareholder does not tender the equity share within the bidding period, such shareholders have the option to tender the equity shares at the same price at which shares had been delisted within one year after the delisting.

If the promoters are successful in delisting the company, post delisting, promoters can give exit to the remaining public shareholders, if any under section 230(11) of the Companies Act, 2013 by giving a takeover offer.

Consolidated Financial Position of EIL for the Financial year 2021:

Intrinsic Value of investment of EIL in Asian Paint Limited:

Apart from this, EIL also holds small investments in other shares & securities.

Delisting offer in past: –

In 2013, when the SEBI introduced minimum public shareholding of 25%, to avoid the dilution in promoter’s shareholding, promoters attempted to delist the company in the same year by offering Rs. 11,455 per share when the share of the EIL was being traded at Rs.2.73 per share. The offer was not successful since shareholders were expecting a higher price. To comply with the minimum public shareholding, the company was forced to reduce the promoter’s shareholding by offer for sale.

Delisting offer: –

Shareholders have the following options –

1. Take exit by tendering the shares in delisting offer and accept the consideration at some discount.
2. Continue to remain shareholders for long term.

If the delisting is successful and the company gets delisted, shareholders who did not participate in the offer have the following options

• Compulsory window for one year

If the shares are tendered in a delisting offer through stock exchange, shareholders will have to pay long-term capital gains at 10% subject to the provisions mentioned in section 112A of the Income Tax Act, 1961. Whereas, if the shares are given post delisting offer during compulsory window of one year, the tax liability is likely to be 20%.

• Compulsory Exit to public shareholders through other modes-

Promoters can provide an exit to remaining public shareholders under the Companies Act, 2013 through any other modes like –

1. compulsory capital reduction of public shareholders under section 66 or through scheme of arrangement under section 230
2. Scheme of merger or arrangement under section 230-232
3. Takeover offer under section 230(11).

Post delisting, if the company tries to provide compulsory exit to the public shareholders using above mentioned options, shareholders have the following options –

1. Raise an objection with the adjudicating authorities i.e. NCLT (National Company Law Tribunal).
2. Application to be made to NCLT for transfer of shares held by public shareholders to the trust.
3. Application to be made to NCLT to take over the shares under section 230(11) at the fair value which shall be confirmed by the appointment of a Registered Valuer.