Vedanta’s Exit Plan For Electrosteel Shareholders 

There’s good news and bad news for shareholders of Electrosteel Steels Ltd.

Though Electrosteel’s current market price is Rs 1.10 per share, it’s well accepted that equity shares of an insolvent company are usually worth nothing. That’s the bad news. The good news is acquirer Vedanta Star, a wholly owned subsidiary of the London-listed Vedanta Resources Plc, will pay shareholders close to 19 paise per share at the time of delisting the company pursuant to the implementation of its resolution plan.

Vedanta Star’s resolution plan for Electrosteel involves an equity and debt infusion amounting to Rs 5,320 crore. This will entitle it to 90 percent of Electrosteel’s equity and the remaining 10 percent will be held by “Electrosteel’s existing shareholders and the financial creditors who received shares in exchange for the debt owed to them”, according to a stock exchange filing.

• Equity infusion: Rs 1,805 crore
• Debt infusion: Rs 3,515 crore
• Equity holding post infusion: 90%

Here’s what the resolution plan details for equity shareholders.

Electrosteel will issue 740 crore new shares to lenders. That takes the total number of shares to 980 crore

Total shares = 980 crore
Face Value: Rs 10 per share

The current face value of an Electrosteel share is Rs 10. That will be reduced to 20 paise per share.

Number of shares = 980 crore
Face Value: 20 paise per share

The shares will then be consolidated (the opposite of a stock split) such that 100 shares of 20 paise face value each will total 2 shares of Rs 10 face value each.

Number of shares = 19.6 crore
Face Value: Rs 10 per share

At this point Vedanta will infuse Rs 1,805 crore towards fresh equity. Vedanta will be allotted 176.55 crore shares, taking its shareholding to 90 percent.

Number of shares = 196.15 crore
Face Value: Rs 10 per share

Thereafter, Vedanta will pay existing shareholders 9.54 paise per share to exit the company ie: delist it.

So What Are Your Electrosteel Shares Worth?

Here’s how the exit will work for existing shareholders…

For illustration purposes assume a current shareholding of 100 shares. They are worth Rs 110 at current market price of Rs 1.10 .

Those 100 shares, of face value Rs 10 each, will get reduced to 100 shares of face value 20 paise each.

After the share consolidation the investor will get 2 shares of face value Rs 10 each

On exit the investor will get Rs 19.08 for the 2 shares.

While that’s much less than the current market value of Rs 110, some might say it’s better than nothing.