Unlisted Sesa Industries has buyers off market at Rs 600…but should you sell ? NO!…It’s worth much more

This posting on Sesa Industries should serve both prime purposes of Investor Education and Protection

I intermittently receive newsletters by post from intermediaries in our Capital Market

A recent newsletter related to a prominently headlined offer to buy shares of unlisted SESA INDUSTRIES at Rs 750…on inquiry the rate offered was Rs 600 !…a year ago the offer was for just Rs 30 !

So is you are one of those lucky shareholders of Sesa Industries,a subsidiary of Sesa Goa ,who was alloted these shares in a preferential issue to shareholders of Sesa Goa at Rs 22.50 in a 1:2 ratio in 1992,when the company was formed to manufacture pig iron,should you sell out to these buyers at Rs 600 ?

No !

Check this out

 http://www.bseindia.com/xml-data/corpfiling/announcement/Sesa_Goa_Ltd_280508.pdf

In May 2008,Sesa Goa issued a Notice to it’s shareholders and send a copy to the BSE.Above link is the copy.It states that at a meeting on April 28,2008,the Board of Sesa Goa decided to subdivide the Face Value of the shares of Sesa Goa from Rs 10 to Rs 1 and also issue a 1:1 bonus.This exercise has been completed.

However of interest in the notice is that because of this sub-division and bonus exercise and the pending Scheme of Amalgamation of Sesa Industries with Sesa Goa………………………

SHAREHOLDERS OF SESA INDUSTRIES WILL RECEIVE 20 SHARES OF SESA GOA OF FACE VALUE RS 1 FOR EVERY 5 SHARES HELD IN SESA INDUSTRIES

Thus if you’re holding 100 Shares of Sesa Industries of Face Value Rs 10, you will receive on amalgamation,400 shares of Sesa Goa of Face Value Rs 1.Sesa Goa is currently quoting at Rs 300…thus 400 shares would have a value of Rs 120000,twice that you would receive if you sold out 100 shares of Sesa Industries at Rs 600 right now !

So it would not make sense to sell Sesa Industries off the market at Rs 600,unless you need the money or are very skeptical of the Amalgamation taking place at all or are convinced that the Share Price of Sesa Goa will tank towards Rs 150 soon

A Scheme of Amalgamation of Sesa Industries with Sesa Goa was initiated in 2005 but has been challenged legally by a shareholder of Sesa Industries .The Bombay High Court,Panaji Bench,overruled in February 2009,a single bench judgement of the Court ruled in favour of the Company in December 2008….The company has filed a Special Leave Petition  in the apex, Supreme Court.The validity of the Scheme was extended to October 31,2009 which ended yesterday..but I suppose will be extended yet further

So if Sesa Industries wins the case,Sesa Industries valuation will ride piggy back on the Share Price of Sesa Goa till the amalgamation

However,if it loses the case even in the apex court,what are the options open to it?

• Cancel the current Amalgamation and probably propose a new one
• Let Sesa Industries remain an unlisted subsidiary
• List Sesa Industries seperately on the Exchanges….even in a bad 2008/9,it has earned Rs 58 crs on  an equity of Rs 20 crs ,giving an EPS of near Rs 30…The networth is Rs 284 crs giving a Book Value of Rs 142…with expansion and price picking up,it is likely to cross Rs 150 crs PAT in coming years…that’s a potential EPS of Rs 75 and a 15 multiple gives a price of Rs 1125

So my advice,is to retain your shareholding in Sesa Industries…consider cashing out only if the differential between Sesa Goa Price and the Sesa Industries Value after considering Amalgamation ratio,is not more than 20%…in other words if the current share price of Sesa Goa  is Rs 300,you should look for a Sesa Industries Share Price Offer of Rs 1000 and more…not Rs 600 as is being offered

So Sesa Industries Shareholders….The choice is yours to make…but let it be an informed one