Goldstone Infra

 

 

I would call it a short-term trading opportunity arisen due to the open offer, which Goldstone Infra has to make. This is an opportunity where the reward to risk ratio is extremely favourable at the current market price of Rs 26-26.50. The background is that the promoters of Goldstone Infra Limited are Goldstone Exports Limited. Goldstone Export Limited was allotted 1.5 crore warrants in April 2007, at a price of Rs 22. These warrants were convertible into the equity shares within 18 months. The promoters exercised their right to convert the warrants into equity shares and the equity shares were converted, but allotted to the promoters in October 2008.

 

Due to the allotment of 1.5 crore equity shares, the share holding of Goldstone Exports and Goldstone Infra went up from about 9.5% to 47.19%, which resulted in triggering of Sebi regulations regarding substantial acquisitions of shares under the takeover code. The promoters then came out with an open offer at Rs 23 for additional 20% stake in the company. Sebi objected to the price at which the promoters came out with an open offer. The promoters took the date of approval in the board meeting for allotment of warrants as the reference date, whereas Sebi directed them to take the date on which warrants were converted into equity shares as a reference date for calculating the open offer price. Sebi thereby directed them to make the open offer at about Rs 43.

The promoters objected to this and filed an appeal with SAT regarding the Sebi directions and this appeal of SAT was dismissed in September 2009. Goldstone Exports thereafter filed their appeal with the Supreme Court which is still under hearing. There are two possibilities which can emerge here. One is that Goldstone Exports wins the case in SC whereby they make and open offer at Rs 23. So people are buying today at Rs 26 and can tender their shares at Rs 23 thereby asking a loss of 10-12%.

Whereas if the promoters lose the case they have to make and open offer at Rs 43 and in addition to that they also have to pay interest for the delayed period. So the total open offer price may come to about Rs 47-49 after adding the interest component. At the current price of Rs 26-26.50, you have a stock where your potential downside could be about 10-12%. In the even of the open offer coming at about Rs 47-48, the market price given the probable acceptance ratio and also assuming the residual price of the share at the price at which promoters have bought the stake in the company, the market price would come to around Rs 38-40, which means you have an upside of 40-60% from these levels.

Here is a case where your downside is restricted to about 10-12% and upside in the short-term maybe about 40-60%. Talking to various people who track Sebi guidelines and who are well aware of Sebi guidelines, they feel the probability of the company making an open offer at Rs 43 plus interest maybe much higher than at Rs 23.