Business Standard

Market regulator Sebi's price discovery framework puts shade on holdcos

Select holding companies rally on optimism around value unlocking

Sebi

Illustration: Binay Sinha

Khushboo Tiwari Mumbai

Listen to This Article

Shares of several investment holding companies (IHCs) rallied on Friday, defying weak market conditions, after the Securities and Exchange Board of India (Sebi) announced a special call auction session for their fair price discovery.

These companies, commonly referred to as Holdcos, are entities which hold assets and securities of other listed companies, most commonly of their own group firms.

Shares of Bombay Burmah Trading Corporation, which is the holding company of conglomerate Wadia group, closed at Rs 1,683, gaining 3.8 per cent.

Kalyani Group’s Kalyani Investment Company, too, jumped 4.5 per cent ending Friday’s trading session at Rs 4,939. The group is engaged in steel, chemicals, forging, and power generation.

Other holding companies like Pilani Investment, Maharashtra Scooters, and Summit Securities also ended the session in green in an otherwise choppy market.

Analysts said these scrips trade at deep discounts to their actual book value and holdings.

They said savvy investors are lapping up these shares on the hopes that they will be able to offload them during the special session at a much higher price.

“Typically, the Holdco discount in global markets is about 30-40 per cent. In India, due to high taxes on dividend payouts and other legacy issues, Holdcos are seen at 70 per cent discount to their intrinsic value. One has to really see whether a special price discovery session will be enough to unlock value,” said an analyst.

The market regulator on Thursday announced a special call auction where there will be no price bands to enable price discovery of holdcos. The first such session will be conducted in October.

Price bands refer to upper or lower limits for a stock to trade within a day, also known as circuit filters.

The special call auction will be initiated by the stock exchanges which have been mandated to provide a 14-day advance notice along with details on overall book value and latest buyback price, among others. Further, such a session will only be held once a year.

There are over 70 listed holding companies. But, not all may be eligible for the special session.

To be eligible, the investment company must have 50 per cent of the total assets invested in other listed companies.

Chart


Further, the six-month volume weighted average price (VWAP) of the company should also be less than 50 per cent of the book value per share.

“The book value of the company based on investments in other listed companies must be Rs 10 crore and the total number of issued shares of the company 10 million. Thus, per share book value of the company based on the value of listed investments is Rs 10,” said Sebi, explaining the eligibility.

The special session will be considered successful if the price discovery is based on orders from at least five unique buyers and sellers. If it is not successful, then it will be extended for another day until the price discovery.

The market regulator has also specified criteria for such holdcos which will be eligible for the special session.

The listed holdcos have seen a rally this year since Sebi first floated the proposal for price discovery.

Also, the sharp rally in shares of the underlying companies has underpinned the gains.

Don't miss the most important news and views of the day. Get them on our Telegram channel

First Published: Jun 21 2024 | 7:14 PM IST

Explore News