In the offer in 2003, based on an offer size of 0.3 crore shares, on a total equity base of 6.6 crore shares, the acceptance level worked out to 4.53 per cent. In the latest offer, 1.4 crore shares are on offer and 1.6 crore shares (including over allotment), on an equity base of 27.06 crore shares, the acceptance works out to 5.2 per cent and 5.9 per cent respectively.

This proportion becomes critical as it can help decide the number of shares that will be accepted by the company, if tendered in this offer. Theoretically, going by the acceptance level determined, a shareholder holding 100 shares will get an acceptance for about six shares if all existing shareholders tender to the offer.

In the July 2003 offer, we found that the final acceptance level was higher at 5.87 per cent for the offer (as against a floor of 4.53 per cent), as individual shareholders and institutions did not fully participate in the offer.

As the offer size is higher at 1.6 crore shares (as compared to 0.3 crore in July 2003), we have assumed participation levels to be about one-third of the total offer size.

So, every shareholder, who holds, say, 100 shares in Infosys, can tender about 20 shares to remain eligible for a higher proportion of acceptance if the participation levels drop in the offer.

If the participation levels remain quite high, shareholders will be locking up the shares, as all unallocated shares will be returned to all shareholders only after two to three weeks from the closure of the offer. But that is a risk and opportunity loss worth taking in such an attractive offer.

Finally, before deciding to tender, shareholders will have to keep a key factor in mind and compute their individual returns after taking this into account: According to the offer terms, as this ADS offer will be an off-market transaction, not put through a recognised stock exchange in India, it will attract capital gains tax in the hands of all shareholders.

All shareholders who have held the Infosys shares for over 12 months will have to shell out a long-term capital gains tax of 10 per cent (plus applicable surcharge).

Shareholders who have held it for less than 12 months will have to pay a short-term capital gains tax at the maximum marginal rate (up to 30 per cent, depending on the tax bracket they fall in).

A snapshot

Sponsored ADS is a process by which there is conversion of existing equity shares listed in India into ADS listed in the US markets. This allows the shareholders in India to convert and sell their equity shares in the US market and realise the proceeds net of issue expenses. Two factors have to be borne in mind: One, this issue does not lead to any additional issue of equity shares by the company. The number of available shares for trading in the Indian market comes down and the ADS goes up in the same proportion. Two, no money accrues to the company out of this issue.

Procedure for tendering

Photocopy of the delivery instruction to the Depository Participant to debit the demat account.

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