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September 23, 2012

Transgene Biotek Ltd , investor’s dilemma on delisting

Warning :-May be heading toward GDR scam

Note : - This is just a case study for learning and gaining more experience by the tricky delisting offer of Transgene Biotek Ltd.  Just watch from outside and do not take part in it unless you are ready to take high risk.

There are two delistings going on in the stock market which are at their initial stage . First is  Ricoh India Ltd and the second is Transgene Biotek Ltd. Ricoh India has declared floor price as 53.79 ( )  but it is trading around 77 . On other hand Transgene Biotek Ltd has declared floor price of 25 (source: ) but it is trading at 11.89 and every day there is down circuit . What does it mean ? Investor are predicting Ricoh India Ltd delisting will be surely successful and it will at a premium . If somebody is taking risks to buy Ricoh India @ 77 then he might me thinking delisting price above 85-90 . But the risk reward ratio is not in the favor of investor in case of Ricoh India Ltd , if delisting get failed then it may touch again in 30-35 . Daily downward circuit in Transgene Biotek Ltd means the market is predicting Transgene Biotek Ltd will not able to delist and delisting will be getting failed . Does it really true ? I don’t understand Pharma companies in depth , especially Transgene Biotek Ltd where many investors burnt their fingers in the past. Not many investors trust management of this company. I am not going to include fundamentals of this company in my  case study for delisting .Not many investors are taker of the announcements made by the company in the past and those announcements not reflected in the bottom line of the company. This stock is known as operator driven stock .

By looking above screen from BSE, Transgene Biotek Ltd will become the stock of laugh . How can a company which does not have even 10 % share will go to delist ? Are you kidding ?

Does really delisting of Transgene Biotek Ltd is impossible ?

Now see detail promoter holding from BSE site .

Now this custodians figure is game changer .  As per SEBI regulations “Any holder of depository receipts issued on the basis of underlying shares held by a  custodian and any such custodian shall not be entitled to participate in the offer. “ Source : . This pdf document contains detail act/rule about delisting.

Who can then participate in delisting process , the answer is simple only ‘public shareholders’ . What is the definition of ‘public shareholders’ , ‘public shareholders’ means the holders of equity shares,
Other than the following:
(a) promoters;
(b) holders of depository receipts issued overseas against
equity shares held with a custodian and such

So as per SEBI rule only 16.78% investor can take part in delisting process of Transgene Biotek Ltd .

There are lot of steps involved in delisting process but first  important one is Postal Ballot “Obtain the prior approval of shareholders of the
company by special resolution passed through postal ballot, after disclosure of all material facts in the explanatory statement sent to the shareholders in relation to such resolution:  Provided that the special resolution shall be acted upon if and only if the votes cast by public shareholders in favour of the proposal amount to at least two times the number of votes cast by public shareholders against it.”

Many investors are worried and thinking Transgene Biotek Ltd’s postal Ballot may get failed .  Stock price of company is moving toward 10 and company offering minimum 25 for delisting , obviously public investor will vote in favour of it unless he is very much sure this stocks worth much more than company is offering. How many of these investors will be there specially lot many burnt their fingers in this stock by investing for the long term. So, if the process is fair and transparent then postal ballot will not make any hurdle .

Once company announces for book building process then they are obliged to accept the Discovered Price if its equal to the Floor Price, but is under no obligation to accept the Discovered price if it is above the Floor Price. Since Transgene Biotek Ltd is trading well below 25 , chances are floor price will become discovered price . If by any chance discovered price is more than 25 then the balls will be in promoter’s half to accept it or reject it.

Then there is SEBI regulation for declaring delisting process success . Most of the investors are worried about this part.  How can promoter increase their holding to  90 % . It looks impossible but what does exact guidelines of SEBI . Again from

An offer made under chapter III shall be deemed to be successful if post offer, the shareholding of the promoter (along with the persons acting in concert) taken together with the shares accepted through eligible bids at the final price determined as per Schedule II,  reaches the higher of –
  (a) ninety per cent. of the total issued shares of that class excluding the shares which are held by a custodian and against which depository receipts have been issued overseas;   or
  (b) the aggregate percentage of pre offer promoter shareholding (along with persons acting in concert with him) and fifty per cent. of the offer size.

The most important word for me is “or” in above rule . is it typo mistake ? If not then it will make life easier for delisting process of Transgene Biotek Ltd.

Both these rule are very well explained by The Practical Lawyer Vijay Pratap Singh Chauhan  Source :

(a) 90% of the total issues shares of that class held by the public (excluding the shares held by a custodian and against
which depository receipts have been issued overseas); or
 - (b) the aggregate of the promoters’ pre-offer shareholding and 50% of the offer size. For instance, where the
pre-offer promoter shareholding is 75%, the promoter will have to achieve a post-offer shareholding that is the higher of
90% or, 75% plus half of 25%, i.e. 87.5%. Thus, where the pre-offer shareholding of promoters is 85%, the promoter
must acquire 92.5% to be able to delist that particular class of shares of the company.

What does it mean for Transgene Biotek Ltd ? As per rule “b” delisting process will be successful if  they are able to acquire  half of the 16.78 % (8.39% ) public shares i.e. 11036206/2=5518103. ( Without GDR conversion )

Does it really difficult for the company to acquire this much share ?  I don’t know management and I don’t track fundamentals of this company but prima facie does not look difficult.

If discovered price remains same as floor price then how much promoters along with FII investor will have to shed  ? 11036206 * 25 = around (27.6 crores)  . That is not much big amount given company was able to placed GDR of 23 million dollar . I don’t know who are GDR holders whether they have done their due diligence or not . But for their FII investor 27.6 crores rupees is not a big amount if company is really promising .

Delisting of Transgene Biotek Ltd is quite complex and somewhat similar to Carol-Info where investors were having their own doubt about the success of the delisting process . Carol-Info was also having GDR (custodian shares) . It was having promoter shareholding around 64% but managed to delist successfully.

If we see price movement of Transgene Biotek Ltd share then it looks like that it can touch 10 sooner, at that price risk reward will be in favor of the investor . I don’t know the fundamentals of this company but if we look 52 week low price then it is around 9 . So at the price of 10 , if we assume downside upto 9 ( may go further) then an investor can lose 10 % but can gain 150% if the delisting offer get successful . Since , I don’t track fundamental of this counter , I am not sure about the downside .

If the promoter and FII (their investor )  are really serious about delisting then this delisting look possible in spite of  low promoter shareholding.

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Disclaimer : Please treat this post as a case study for delisting and not investment advise .


  1. very good analysis for this study case,in process it comes out with investors name,so do it will give confidence to investor ??????????

  2. Nice report..Information is good ..Thanks for sharing..
    Pharmaceutical Company India

  3. ET Now Article on transgene biotek delisting.

  4. Now It looks like a GDR scam . Custodians share drop from 73 to 39 % that too till sep12 , it can be reduced again in last one month .
    GDR are getting converted into equity share and getting sold to innocent retail shareholder .
    Ashok Bakliwal, president of Bombay Shareholders' Association has correctly pointed toward GDR scam in above mentioned article .
    Thanks god we were just watching from outside else ..................



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