The Infratel Buyback Offer Has A Near Certain 10% Return But You Have To Own It Today

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Bharti Infratel will buy back shares worth Rs. 2,000 cr. soon – in fact, if you buy the shares today, you will qualify to tender your shares for buyback. This is a proportionate buyback at Rs. 425, through a tender offer.

Note: We managed to see a 9.7% return on this trade! Check out this link.

(See the Tender Announcement)

The buyback is for about 2.3% of the company. This is tiny and usually not noteworthy, but bear with us.

Infratel has 70% of its shares held by the promoter (Airtel) and about 25% by FIIs. Only a small percentage is by retail shareholders, and this is a very interesting place to be.

Why?

The offer document states that if you are a small shareholder (i.e. market value of shares is less than Rs. 200,000) and you tender these shares, then 15% of offer is reserved for such shareholders.

15% of the 2.3% is around 0.3% of shareholders. That much is reserved for small shareholders.

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But because of the high holding by FIIs and Promoters, it appears that the holding by small shareholders is just 0.19% !

This means: if you buy shares worth less than Rs. 2 lakh and tender them, it’s nearly certain that all the shares you give will be accepted.

The current price of Infratel is Rs. 380. The price of the buyback is Rs. 425. You will make a profit of Rs. 45. Assume a 15% tax (if you tender through your broker, you get to pay STT and claim lower capital gains tax) and you still make Rs. 38 or so. That’s a 10% gain in about a month (when you get the money).

Infratel

This sounds strange – why is the current price so low? Because institutions don’t get the advantage – only retail does. So the arbitrage doesn’t really exist!

Risks: Of course, so many retail investors may buy that they go beyond the 0.35% or so that is reserved for retail. Which reduces the amount of shares retail can buy so you don’t get full acceptance, and then you’re left with shares that can fall if the market value falls. This is unlikely since that means either promoters or institutions are selling but of course, stranger things have happened!

It’s only half an hour remaining for you to take advantage – since the offer ends today. Sorry for the delay, but we only just got to know!

Disclosure: Not Invested.

 

19 COMMENTS

  1. Please ignore my previous comment. Promoter tendering share will not have an impact. Thanks to your timely post bought some. Thank you.

  2. Noticed that Infratel had done a lot of up-down for several days prior to buyback announcement but no net effect (so no insider buying?). Also it has gone down today. Also went down yesterday.

    Maybe it is just random. Free 100 Dollar bill lying at the kerb that no one wants to pick.

    What could be an alternative explanation?

      • One alternate hypothesis is that promoters and Institutions could not have offloaded their stock without sending Infratel into Pataal lok. This small buyback offer gives them some liquidity support from hopeful small buyer (who thinks that if company is buying back then share can’t be bad. ROE <<< P/E suggests otherwise). So some of them could exit taking advantage.

        You track large deals. It will be interesting to see who's getting out.

  3. Right now only record date is announced .Generally it takes 2.5 to 3 months to complete the process.For eg.in wipro record date was 5th may & one can submit shares for buy back till 30th June & payout is some where in mid July.While here in Bharti Infratel only record date is announced .So uncertainty about time of process of buyback. So if whole process gets over in 3 months the return will be around 3% ,that also if all shares gets accepted. In last few days lot of small investors have taken position,hence may be 60-65% shares will be accepted.Balance one might have to sell at loss in secondary market. So there is a risk of time ,% of acceptance etc.

  4. Due to last few days buying, the retail holding won’t be .19%, it would certainly go beyond .6% so that would make the acceptance ratio less than 50%.

  5. But unless MF/FPI have sold to retail investors the chunk of shareholders with capital less than 2L wont go up.

    • You must call your broker and find out. Typically it involves putting your shares into their pool account and asking then to put it in the tender window…

  6. Bharti Infratel has come out with the letter of offer, the acceptance ratio for small shareholders works out to be 85% (1 equity share for every 1.18 share held on the record date). This assuming all retail shareholders tender.

  7. I am holding Bharti Infratel since its IPO, wondering if this buyback is a good chance of booking the profit?

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