HIDCL Promoter Shares Auction: Will They Trade At Ordinary Share Price?

Hydroelectricity Investment and Development Company Limited (HIDCL) has been auctioning its promoter right shares from Falgun 01. The auction will conclude on Falgun 15, 2078.

Earlier, the company concluded the 1:1 ratio right shares issue on Bhadra 08, 2078. 11,00,00,000 units right shares were issued from 5th Shrawan. The hydropower company declared the book closure date for its rights offering on Jestha 28, 2078. Thus, investors maintained before that day were eligible to apply for the shares.

3,30,00,000 promoter right shares were unclaimed by eligible promoters. Thus, the same shares are now being auctioned. Note that the other 7,70,00,000 shares have already been listed in NEPSE.

Rs. 100 is the minimum bid rate for 3,30,00,000 promoter shares. The minimum bid quantity is 100 unit shares. There is no upper limit-a bidder can bid for the entirety of the shares.

Individuals, institutions, and companies are all eligible to bid for the auction. Global IME Capital has been appointed the auction manager.

Auction Notice

Story of HIDCL's Capital Growth and Structure

The company started with a paid-up capital of Rs. 10 Arba after its IPO issue. At this time, 80% of the capital was contributed by 7 different government entities and 20% was collected from the IPO issue.

The company then distributed 10% bonus shares for the fiscal year 2074/75. This scaled the paid-up capital to Rs. 11 Arba.

After this, the company issued a 1: 1 right offering from Shrawan 05 to Shrawan 25, 2078. This would scale the paid-up capital to Rs. 22 Arba.

However, of the 11,00,00,000 shares issued, only 7,70,00,000 shares were subscribed by eligible shareholders. Three of the government entities (Employee Provident Fund, Citizen Investment Trust and Rastriya Beema Sansthan) did not claim their portion of the right shares. Thus, 3,30,00,000 shares were unclaimed.

The same shares are now being auctioned.

Thus, without this portion of shares that weren't auctioned, the company's paid-up capital rose to Rs. 18.7 Arba. Note that the company had planned to double the paid-up capital to Rs. 22 Arba. So, in actuality, the company could not scale its paid-up capital by a 1: 1 ratio at all.

The company then distributed 8% bonus shares for the fiscal year 2077/78 on this paid-up capital of Rs. 18.7 Arba. Thus, the paid-up capital rose to Rs. 20.196 Arba.

Now, if this auction can sell all the shares, the paid-up capital will finally be Rs. 23.496 ~ Rs. 23.5 Arba.

Public Shareholding at Present

When the paid-up was Rs. 11 Arba, the public held 20%, i.e. Rs. 2.2 Arba
Since all the public applied for the 1: 1 rights offering, additional Rs. 2.2 Arba was contributed by the public.

Thus, total shareholding = Rs. 4.4 Arba

These shareholders got 8% bonus shares too.

Thus, public contribution to capital at present = Rs. 4.752 Arba

If the auctioned 3,30,00,000 shares are allotted to the public

Public contribution to capital
= Rs. 4.752 Arba + Rs. 3.3 Arba
= Rs. 8.052 Arba or 34.25% of the post-auction paid up capital of Rs 23.50 arba. Whereas, 7 government entities ownership would be diluted to 65.75% from the earlier 80% stake. 

How will the auctioned shares be traded?

This is where things get shady. Whether these auctioned shares will be traded at ordinary share prices like ordinary shares confuses the investment community.

When Sharesansar called Paras Mani Dhakal, CEO of the auction manager Global IME Capital, he stated that he wasn't totally clear about the matter. Although he hinted that there had been talks about letting them trade like ordinary shares, Dhakal was also quick to advise that Sharesansar call the company itself.

On calling HIDCL's corporate office, the first responder replied with surety that these shares would trade in NEPSE like ordinary shares.

Update: Sharesansar could finally establish contact with higher authorities. Information Officer Ramesh Paneru said that these auctioned shares will indeed be promoter shares. Company secretary Jiban Basnet also confirmed that these shares will be promoter shares since they have come from promoter ownership. 

However, the thing to keep note is that the promoter shares and the ordinary shares have been registered in the exchange under the same name. Thus, the existing promoter shares have been listed under HIDCL itself. As such, it does not make sense for HIDCL to make another ticker (HIDCLPO) for these 3,30,00,000 shares. 

Thus, there will be no apparent distinction between these shares and ordinary shares once they are listed in NEPSE. 

However, there are three issues with this.

Issue 1: Such incidents have happened before

Numerous other companies had also previously auctioned their promoter shares. During the auction, it was not clear that they would trade at the ordinary/ promoter share price.

However, in the end, they were listed as promoter shares. NIBPO, NABILPO, EICPO and RBCLPO are some examples.

Although there is no fundamental difference between ordinary and promoter shares, when given a different tag and ticker symbol, they trade at different prices.

For instance, EIC closed at Rs. 670 yesterday while EICPO closed at Rs. 487.

Issue 2: Bombardment of Supply

If the shares are indeed listed as ordinary shares, it will increase the available supply in the market. This may create a psychological imbalance in investor sentiment and make the price plunge.

The stock price is indeed determined in the long run by company fundamentals. But the supply of shares does play an important role, and sometimes it can be the most vital determinant of stock price.

Issue 3: NEPSE's Moral and Operational Dilemma

Let us assume that the shares unclaimed by the promoter institutions will indeed trade like ordinary shares, as the company claims.

If this happens, can the promoter institutions sell their other equity stake like ordinary shares later on?

Now, as mentioned earlier, the promoters of HIDCL are government entities, and it is unlikely that they will sell their shares, or at least engage in frequent trading.

But giving the benefit of the doubt, if it does happen, the event does possess the ability to create an imbalance in supply in the market and the company's stock movement.

Wrapping Up with HIDCL's Recent Performance

Regardless of whether the shares are listed as ordinary shares or promoter shares, it is clear that they will be tradable in NEPSE. The auction of shares allows investors to pay a lower price for the shares than the prevailing market price. From this aspect, bidding in an auction is often profitable. 

HIDCL has posted a net profit of Rs. 45.36 crores in the second quarter of FY 2077/78. The profit was Rs. 21.29 crores in Q1 and Rs. 42.83 crores in the Q2 of the previous fiscal year.

The quarterly report shows a paid-up capital of Rs. 18.7 Arba, indicating that it did not adjust the 8% bonus shares distributed recently.

HIDCL still has the biggest chunk of its investment, i.e. Rs. 14.02 Arba in term deposits. It has forwarded Rs. 4.81 Arba worth of loan to power projects and Rs. 80.62 crores investment in subsidiaries. Rs. 1.05 Arba has been invested in equity and Rs. 1.25 Arba of on-lending.

According to the second quarterly report, HIDCL has a PE ratio of 69.58, annualized ROA of 4.13%, annualized basic EPS of Rs. 4.85, and net worth per share of Rs. 106.03.

The company has been allowed to participate in consortium financing by the central bank.

In the financial world, a consortium refers to several lending institutions that group together to jointly finance a single borrower. A consortium may arise because the size of the project at hand is simply too large or too risky for any single lender to assume.

A meeting of the Board of Directors of NRB held on January 17 has decided to designate HIDCL as a financial institution to implement the provisions of the Banks and Financial Institutions Debt Recovery Act, 2058 (with amendments) as per Section 3 (d). With this, the company has been allowed to participate in consortium financing and has come under partial regulation of Nepal Rastra Bank.

NRB also issued instructions to commercial banks, development banks, and finance companies that only licensed financial institutions and HIDCL are allowed to participate in co-financing in the related sectors.

HIDCL closed at Rs. 317.90 yesterday.