Promoters may rush to hike stake in holding cos

May be a bit early to conclude on the impact of the market regulator’s recent move of allowing promoters to hike their stake up to 75% thr ough the creeping acquisition route. But a section of market watchers are expecting an immediate fallout of the new rule. They feel holding companies of various corporate houses, available at a steep discount to their net asset value, are likely to see a flurry of activity in the coming days. With share prices of these holding firms having been beaten down quite a bit, cash-rich promoters would find it cheaper to increase stakes in their companies through the holding companies’ route. In an important amendment to the creeping acquisition rules last week, Sebi allowed promoters to increase their holdings in companies up to 75% through the creeping acquisition route provided that the acquisition is done through open market purchases and not through bulk/block deal or through preferential allotment. Earlier, this route was not available for promoters whose holding reached 55%. Creeping acquisition refers to the process wherein promoters can increase their stake each year by 5%. Large corporate houses, including the Tatas, Birlas and Godrejs have listed holding companies that in turn hold sizeable stake in the various group companies. Holding companies typically are formed only for the purpose of owning shares of other group companies. As such, these entities are not involved in the actual production of goods or services. “For cash-rich promoters, this is the ideal time to raise their stake in holding companies,” says Networth Stock Broking head of sales Deepak Mehta. “Firstly, prices are much below the fair value in lots of cases and secondly, the holding companies are quoting at a substantial discount. The only issue is how many promoters have that kind of cash,” he adds. For instance, Tata Investment Corporation holds sizeable stake in Tata entities like Tata Chemicals, Tata Motors, Tata Power and Tata Steel. As per Monday’s closing price, the market capitalisation of Tata Investment stood at Rs 967 crore. Meanwhile, the value of its total investments in Tata group companies is estimated to be around Rs 1,200 crore. According to KRIS director Arun Kejriwal, the regulator’s move has given promoters “an excellent opportunity” to up their stake in holding companies that “typically trade at a discount to their net asset values”. The value of these entities do not appreciate much and the management gains only by way of dividends, he adds. “There is a lot of logic in this approach,” feels Mr Kejriwal. Meanwhile, Mcdowell Holdings has a stake in companies like United Breweries and UB Engineering. While the M-cap of Mcdowell Holdings is less than Rs 66 crore, its investment in UB group companies is pegged around Rs 165 crore. Bajaj Holdings is the holding company of Bajaj group and has a market capitalisation of around Rs 3,445 crore. The value of its investment, however, in Bajaj entities is much higher than its own M-cap.