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S. Vaidya Nathan

SMART moves by the Commonwealth Development Corporation (CDC), close on the heels of the acquisition of a significant stake in Punjab Tractors, are likely to give it bigger bang for the buck.

Its proposed open offers for Swaraj Automotive, Swaraj Engineering and Swaraj Mazda may leave CDC with sizeable stakes in these companies. These holdings could hold immense upside potential when CDC decides to cash out.

Savvy moves: Quite clearly, those in-charge of the Punjab Tractors' disinvestment have missed a few tricks. This has left CDC with options to enhance the value of its investment in Punjab Tractors from a long-term perspective.

The first was the open offer for a further 20 per cent equity (it had picked up 23 per cent in the disinvestment exercise) in Punjab Tractors at Rs 153 per share.

CDC is exempt from making the open offer under the SEBI regulatory framework. Yet it has gone ahead and made a voluntary open offer. The reasons are not far to seek. At the time of selling, a 43 per cent stake would fetch a fancier price than what sale of a 23 per cent stake would. CDC has now followed up with open offers for Swaraj Mazda, Swaraj Engineering and Swaraj Automotive — companies in which Punjab Tractors has equity holdings ranging between 23 per cent and 29 per cent.

CDC, exempt as it is in the case of Punjab Tractors from the Takeover Code requirements, is not required to make open offers for the Swaraj trio. By its acquisition of the stake in Punjab Tractors, the change in control clause is not triggered.

Nor has the 15 per cent threshold — the other trigger for a mandatory open offer — been breached. This would be the case even if CDC gets a 43 per cent holding in the Punjab Tractors' equity, which it will have when the open offer ends.

By announcing open offers for the Swaraj trio, CDC is trying to get a holding (of, say, 10-15 per cent), which would place it in a position to sell out at an attractive price.

If it gets such a stake, it will be as well-positioned as the Tatas and Ambanis were when they gave up, at a premium of over 100 per cent, their holdings in ACC and Larsen & Toubro respectively

CDC — as a strategic financial investor — has shown savvy in making these voluntary open offers. It will now reap gains which, in the normal course, should have accrued to the Punjab Government.

Had the Punjab Tractors holdings in the Swaraj trio been vested in a special purpose vehicle ahead of the PTL disinvestment, a strategic sale would have delivered good value to the government.

The failure to do so has suited CDC, and made its rather low price of Rs 153 per share for Punjab Tractors even more attractive.

The Punjab Tractors' disinvestment is, increasingly, turning out to be an example of how not to disinvest.

This is a surprise, and a disappointment, coming as it does when disinvestment exercises of the Government of India have been marked by considerable savvy and yielded fancy prices in cases such as IPCL, VSNL, IBP, Maruti and CMC, to name a few.

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