Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

In late May 2020, <a href="https://www.smartkarma.com/entities/adani-power-ltd" target="_blank" data-smartkarma-citation="entities:247:1" rel="noopener">Adani Power Ltd (ADANI IN)</a> received a proposal from its promoters to take it private through a Delisting Offer process (discussed in <a href="https://www.smartkarma.com/insights/adani-power-the-next-delisting-exit-offer" target="_blank" data-smartkarma-citation="insights:39894" rel="noopener">Adani Power - The Next Delisting/Exit Offer?</a>). It was duly put in front of the Board and then in front of shareholders who approved taking things forward through a Postal Ballot which was <a href="https://www.bseindia.com/stock-share-price/adani-power-ltd/adanipower/533096/voting-results/" target="_blank" rel="noopener">approved</a> 23 July 2020. The parameters for Delisting Offers are outlined in the SEBI Delisting Regulations (<a href="https://www.sebi.gov.in/legal/regulations/jul-2019/securities-and-exchange-board-of-india-delisting-of-equity-shares-amendment-regulations-2019_43822.html" target="_blank" rel="noopener">Amended 2019</a>). Generally, the schedules are somewhat non-regulated at the beginning and heavily regulated at the end, but there is one period of time in the process which has significant flex, and that is the time between the shareholder approval for the Delisting Offer and the application to the Exchange to conduct the Delisting Offer. The maximum wait between one and the other is one year. That deadline is coming up on 23 July. IPOed in 2009, the stock skyrocketed, then fell sharply as the promise did not fulfill itself, and the shares traded down to Rs. 30/share by 2013, then in a Rs 20-40/share range from mid-2015 for the next three years. There was a brief pop to the Rs 50-60 range at the end of 2018 where it stayed until early 2020. The stock broke Rs 50 on the way lower on 28 Feb and traded most of April below Rs 30/share. Because the Floor Price of any Offer be determined by Regulation 8 of the <a href="https://www.sebi.gov.in/legal/regulations/apr-2017/sebi-substantial-acquisition-of-shares-and-takeovers-regulations-2011-last-amended-on-march-6-2017-_34693.html" target="_blank" rel="noopener">SEBI </a><a href="https://www.sebi.gov.in/legal/regulations/apr-2017/sebi-substantial-acquisition-of-shares-and-takeovers-regulations-2011-last-amended-on-march-6-2017-_34693.html" target="_blank" rel="noopener">(Substantial Acquisition of Shares and Takeovers) Regulations, 2011</a>, generally promoters wait until the average price is low and starts going higher before they make a proposal for delisting. In this case, the average was in the low Rs 30s range. The original proposal cited several reasons why the Proposal should be accepted. <section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/210/924/original/Delisting+Reasons+Adani.png?1622703412" class="editor-image img-responsive" data-smartkarma-image-id="210924"></figure><div class="content-caption">source: <a href="https://www.bseindia.com/xml-data/corpfiling/AttachLive/b45ba492-c58a-4d04-b744-ff4d63578ed7.pdf" target="_blank" rel="noopener">Delisting Proposal Board Meeting Intimation</a>
</div></section>These reasons cited were, as I noted a year ago, blatherskite, tarradiddle, trumpery, and hogwash. All of them. But it was a good buy. Then, at the end of March, I wrote <a href="https://www.smartkarma.com/insights/adani-power-how-much-is-too-much" target="_blank" data-smartkarma-citation="insights:49665" rel="noopener">Adani Power: How Much Is Too Much?</a> and figured it was OK to take money off the table. 
The question one has to ask now is... is it?  Is there more? Should there be more? 
There was an excellent reason to buy in the Rs.30s. The Rs.60s were not that much more expensive. At Rs. 100/share one is getting into more elevated territory, and one has to have questions about the shareholder structure - as one should about most of the listed entities in the group.
More below the fold. </section>

In late May 2020, Adani Power Ltd (ADANI IN) received a proposal from its promoters to take it private through a Delisting Offer process (discussed in Adani Power - The Next Delisting/Exit Offer?). It was duly put in front of the Board and then in front of shareholders who approved taking things forward through a Postal Ballot which was approved 23 July 2020. The parameters for Delisting Offers are outlined in the SEBI Delisting Regulations (Amended 2019). Generally, the schedules are somewhat non-regulated at the beginning and heavily regulated at the end, but there is one period of time in the process which has significant flex, and that is the time between the shareholder approval for the Delisting Offer and the application to the Exchange to conduct the Delisting Offer. The maximum wait between one and the other is one year. That deadline is coming up on 23 July. IPOed in 2009, the stock skyrocketed, then fell sharply as the promise did not fulfill itself, and the shares traded down to Rs. 30/share by 2013, then in a Rs 20-40/share range from mid-2015 for the next three years. There was a brief pop to the Rs 50-60 range at the end of 2018 where it stayed until early 2020. The stock broke Rs 50 on the way lower on 28 Feb and traded most of April below Rs 30/share. Because the Floor Price of any Offer be determined by Regulation 8 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, generally promoters wait until the average price is low and starts going higher before they make a proposal for delisting. In this case, the average was in the low Rs 30s range. The original proposal cited several reasons why the Proposal should be accepted. source: Delisting Proposal Board Meeting Intimation
These reasons cited were, as I noted a year ago, blatherskite, tarradiddle, trumpery, and hogwash. All of them. But it was a good buy. Then, at the end of March, I wrote Adani Power: How Much Is Too Much? and figured it was OK to take money off the table. 
The question one has to ask now is... is it?  Is there more? Should there be more? 
There was an excellent reason to buy in the Rs.30s. The Rs.60s were not that much more expensive. At Rs. 100/share one is getting into more elevated territory, and one has to have questions about the shareholder structure - as one should about most of the listed entities in the group.
More below the fold. 

Not Much Time Left for Adani Power Delisting Offer

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

Power Grid Corporation Of India / Equity Capital Markets

POWERGRID Infrastructure Investment Trust (PGIT) aims to raise around US$1bn in its India IPO. PGIT is an investment trust setup to own transmission assets of its sponsor Power Grid Corporation of India Limited (PGCIL). PGCIL is a central public sector enterprise which has been listed since 2007. PGIT will initially own five assets with a total network of 11 power transmission lines of approximately 3,698.59 ckm and three substations having 6,630 Megavolt amperes (MVA) of aggregate transformation capacity, as of Sep 2020, across five states in India. The total valuation of the assets was INR105bn (US$1.4bn) as of Sep 2020. These assets were awarded to PGCIL on a  build-own-operate-maintain (BOOM) basis. Therefore, the assets are operated under a long 35 years service agreement with largely pre-fixed revenue based on availability. In that sense, they will provide stable returns. However, its revenue terms are structured in such a way that its yield will continue to decline, while its sponsor’s government ownership will mean that it's unlikely to diversify away from transmission assets with declining yield.

POWERGRID Infrastructure Investment Trust (PGIT) aims to raise around US$1bn in its India IPO. PGIT is an investment trust setup to own transmission assets of its sponsor Power Grid Corporation of India Limited (PGCIL). PGCIL is a central public sector enterprise which has been listed since 2007. PGIT will initially own five assets with a total network of 11 power transmission lines of approximately 3,698.59 ckm and three substations having 6,630 Megavolt amperes (MVA) of aggregate transformation capacity, as of Sep 2020, across five states in India. The total valuation of the assets was INR105bn (US$1.4bn) as of Sep 2020. These assets were awarded to PGCIL on a  build-own-operate-maintain (BOOM) basis. Therefore, the assets are operated under a long 35 years service agreement with largely pre-fixed revenue based on availability. In that sense, they will provide stable returns. However, its revenue terms are structured in such a way that its yield will continue to decline, while its sponsor’s government ownership will mean that it's unlikely to diversify away from transmission assets with declining yield.

POWERGRID InvIT Pre-IPO - Always Going to Be Tricky with a Declining Yield

David Blennerhassett

Last Week in Event SPACE: Capitaland, Languang Justbon, Fast Retailing, Crown Resorts, Adani Power

On 29 May 2020, the promoters of <a href="https://www.smartkarma.com/entities/adani-power-ltd" target="_blank" data-smartkarma-citation="entities:247:1" rel="noopener">Adani Power Ltd (ADANI IN)</a> announced a proposed Delisting Offer. It was duly put to the board, approved, then put to shareholders, and shareholders approved the move to allow progress on the Delisting Offer and concomitant Reverse Book Build auction. 
The deadline for the company to apply to the Stock Exchange for In-Principle Approval of Delisting is one year from the shareholder approval (23 July 2020). That leaves plenty of time. 
The Indicative Price for the Delisting Offer was Rs. 33.85/share. Yesterday, the stock fell by the limit and closed at nearly three times that price at Rs. 99.15/share. 
There isn't much coverage, but there doesn't need to be. It is not really going up because of fundamentals as far as I can tell. 
The shareholder movement in calendar Q4 last year was instructive.

On 29 May 2020, the promoters of Adani Power Ltd (ADANI IN) announced a proposed Delisting Offer. It was duly put to the board, approved, then put to shareholders, and shareholders approved the move to allow progress on the Delisting Offer and concomitant Reverse Book Build auction. 
The deadline for the company to apply to the Stock Exchange for In-Principle Approval of Delisting is one year from the shareholder approval (23 July 2020). That leaves plenty of time. 
The Indicative Price for the Delisting Offer was Rs. 33.85/share. Yesterday, the stock fell by the limit and closed at nearly three times that price at Rs. 99.15/share. 
There isn't much coverage, but there doesn't need to be. It is not really going up because of fundamentals as far as I can tell. 
The shareholder movement in calendar Q4 last year was instructive. 

Last Week in Event SPACE: Haier, Tokyo Dome, Cowell, Infratil, Link Admin, Sapporo/Asahi, Mcdonald's

India

Adani Power Ltd is a power project development company. The Company develops, operates and maintains power projects in India.

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Adani Power (ADANI IN)

Not Much Time Left for Adani Power Delisting Offer

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Last Week in Event SPACE: Haier, Tokyo Dome, Cowell, Infratil, Link Admin, Sapporo/Asahi, Mcdonald's

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

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