Wednesday, June 18, 2008

Tatas Man Up

Chivalry sometimes shows up when you run out of choices. When Tata owned Indian Hotels rights issue (6% NCD cum convertible warrants at Rs.150/- Offer size Rs.600 crore) got barely 19% subscription, the promoter group has the gall to pick up the unsubscribed portion – even as the stock is languishing at Rs.104/- at close yesterday.

The offer was doomed from inception. Wondering how Nimesh Kampani’s JM Finance let such a dubiously priced issue hit the street. The NCDs carried a 6% rate of interest when even AAA rated PPF is offering 8%; the conversion price of attached warrant at Rs.150/- (1 for 10 equity shares held) when shares were quoting Rs.114/- was insane. Ok. The name is TATA. But when the sentiment is rock bottom, names don’t mean much.

When markets thaw stock prices quote low and ideally clients should be advised to put off their fresh fundraising plans and instead use some group funds (they have bought in Rs.480 crore now to bail out the issue) to shore up their stake - either through a buyback or through creeping acquisition – like some smart founders do now. But then that would mean JM should settle for a lower fee (for buyback) or for just brokerage (from creeping acquisition), if routed through them. Anyway I-banks can’t count on Tata clientele for long; now that they are coming up with their own investment bank – Tata Capital.

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