Feb 25, 2008|
A merger, a bonus & more...
Two key announcements marked the latest weekend for India Inc. First was the announcement of a proposed mega-merger between HDFC Bank and Centurion Bank of Punjab. You shall read more on the same on our website later today. The second announcement, which was made yesterday, was the 3:5 bonus issue of equity shares from Reliance Power. The company has proposed to issue 3 bonus shares for every 5 shares held by non-promoter shareholders. In effect, this shall reduce the cost price for those retail shareholders who were allotted shares in the company as part of the IPO process, from Rs 430 to Rs 269. For institutional investors, who were issued shares at Rs 450, the effective cost price now stands at Rs 281.
Thus, from a retail applicant's perspective, at the current market price of Rs 417, a loss of 3% (from the original cost of Rs 430) has suddenly transformed to a gain of 55% (over the adjusted cost of Rs 269)! What is more, one of the promoters (AAA Ventures, controlled by Anil Ambani) has shown its 'gratitude' by not issuing bonus shares to itself and rather diluting its shareholding to reward non-promoter shareholders. AAA Ventures has also simultaneously announced a voluntary contribution of 2.6% of its shareholding in Reliance Power to Reliance Energy (the other promoter), to protect the company from any dilution of its existing 45% stake in Reliance Power, as a result of the bonus proposal. Accordingly, Reliance Energy's stake in Reliance Power will be maintained at the existing level of 45%. Overall, it seems nothing more than a face-saving exercise from the promoters consequent to the stock's poor performance after its listing since a couple of weeks ago. Bonus shares from a company that will still have zero operating revenues for the next three years are not really bonus in their true sense!
As the US economic performance asks for another rate cut from the Federal Reserve, central bankers in another economic behemoth - China - plan to stick with a tight monetary policy (hold interest rates high). This is on the back of concerns of inflation rate spiraling into a higher orbit. As a matter of fact, inflation in China has accelerated to the quickest pace in more than 11 years after the worst snowstorms in half a century have disrupted food supplies in that country. Food prices have soared 18% after blizzards paralyzed transport systems and destroyed crops. The Chinese government faces the challenge of curbing inflation without derailing the expansion of the world's fastest-growing economy, which is expected to grow at a double-digit rate this year as well (after a 11.4% YoY growth in GDP in 2007).
Asian markets are trading mixed currently. While Hong Kong and China are down marginally, gains are being witnessed in Japan and Singapore. As for the Indian stock market, these closed last week amidst weakness. Growing concerns over an imminent US recession cast a shadow over the benchmark indices, with the BSE-Sensex and NSE-Nifty
ending the week with losses of 4.2% and 3.6% respectively. As concerns of a considerable slowdown in the US economy gathers steam, the fact that emerging markets like India will be impacted, though not directly, cannot be denied. While India is not largely impacted by a trade slowdown from the US, as we are not a major exporters to that country, the fact that our equity markets receive a large part of foreign inflows from US investors (directly or through the Mauritius route), any such slowdown could be detrimental for Indian stockmarkets, though strictly in the short to medium term.
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