[vgsatwork]

@rathi_b
Any reason given by SKR as to why they are going for fund raising now when the LOC is about to be approved, with such level of dilution?

[vgsatwork]

@m4max1917 Buy back can happen ONLY on fully paid up equities and is possible through only one of these roues
1. Tender offer
2. Book building process through stock exchange
3. Buying from odd lot holders
Buyback is done to reduce equities and the surrendered equities would become null and void and reducing the overall paid up capital.

I believe what you are referring is open offer. This is applicable when a company buys 25% equity of another company, it has to necessarily make an open offer to buy atleast 26% more from existing shareholders and all shareholders are eligible to participate. They can chose to buyout remaining 75% as well and delist the company and take it as a private company. In that case as well all shareholders get equal opportunity to surrender their shares. I don’t think foul play is possible either in buyback or in open offer. But if the allottees of Preferential warrant chose act in concert with the promoter, they need not make an open offer since they are different individuals and they are NOT part of promoter group. Hence it would become difficult Public shareholders to block/defeat any resolution moved by promoters (which is not in the best interest of minority/public shareholders) as the promoters and the people who act in concert with the promoters will always vote together and their combined voting would exceed the required 50% limit to pass any resolutions.

If there is a company buying BCG shares from open market and if it exceeds 25% stake, we could get a exit at decent valuations. We cannot be so certain in the other case since there is no reason for them to buyback or make an open offer

[vgsatwork]

@buffet for question 2, technically they can exercise(paying 100% money and get shares) these warrants anytime within 18 months and the lock-in period is 6 months from allotment date(date when they paid 25% initial money).
So, technically they can exercise the warrant immediately on completion of 6 months and sell it immediately without having to hold it as shares with them since they have already met the required lock-in period of 6 months from the date of allotment (date when they paid 25% money)

This is my understanding after reading the ICDR rules of SEBI. I could be wrong in my understanding

Question 5 – Warrants can either be exercised to convert them into shares or could be left to expire without exercising them in the 18 months. But one cannot do anything else with that and till the time they are converted into shares by paying the full amount, there is no question of them being eligible for buyback

Question 1,3 &4 are anybody’s guess

[vgsatwork]

I know most of the investors in this forum are upset and angry about the preferential warrant without giving details on why now, why to these individuals, etc. While this is a big concern, bigger concern should be about the balance sheet of the company and asset write offs, especially in the scenario where promoters along with the new investors take any action that affects the assets in the balance sheet. It is these assets that are holding the equity value (a.k.a book value) of our investments and the accumulated earnings from these investments. In that context we need to be extra vigilant because that book value is OUR MONEY and we have to safe guard the same

[vgsatwork]

@Rathi_b Thanks for getting this arranged. I have made a complaint to investors relations yesterday late evening through scores portal of SEBI indicating the Zaveri trading’s bulk trade and that it is linked to the beneficiary of the preferential warrants saying that it is highly improper since I am not aware of specific irregularities, but this being impropriety. Hence investor relations has to provide an update and close this complaint in next 30 days as the complaint is being tracked through sebi’s portal unlike direct emails to investors relations which can be pushed under the rug. So, it is safe to assume that SKR might be aware of the same through the complaint received from investor relations

[vgsatwork]

Let us speculate for a moment. Any promoter in the world would want such large preferential warrants at cheap rates to be issued to themselves in order to increase their stake, if major business uptick or share price surge is expected. In case of BCG, promoters have only 36% stake and any such proposal would be defeated by by the public shareholders and the promoters would know that and hence they have declared that promoters are not party to this preferential warrants issue and the board has chosen these selected individuals who would be getting the warrants upon shareholder and regulator approval. In this particular case, the amount of dilution (if public shareholders are not getting the preferential warrant and the allottee are people acting in concert with the promoters) for public shareholders is going to be from 63.24 to 37.64% at which level public shareholders would not have any kind of leverage to defeat any of the proposals put forth by the promoters for voting thus giving them absolute control over the affairs of the company. No sane promoter would cede management control of the company upon equity dilution and the annual report that is what the management is saying would happen post exercising of warrants by these allottees by saying that they are not party to this.

Having said all these, somehow the promoters are counting in the support from shareholders to pass this resolution w.r.t. preferential issue and the only way on earth it can happen is with the support of key public shareholders who have sizeable stake (including G gang). Again it is foolish to count in their support, if ultimately their stake is going to come down significantly. One has to give something to get something back.

So, what do you think is the game that is being played here and what we can do as individual shareholders?

[vgsatwork]

I don’t know if legally it is right or wrong (For a preferential warrant allottee to be involved in day trading of the same scrip while the resolution is about to be voted). But it is definitely improper and does not give the impression that the investment from such allottee would be long term. There is a disclosure as part of the annual report (page 52)that says proposed allottees have not sold/transferred any equity shares during the last 6 months preceding the relevant date. The relevant date here being 27th Nov 2020. Hence technically the disclosure is not incorrect, but this certainly is impropriety

[vgsatwork]

Yesterday there was a block deal in NSE by Zuber trading (bought about 26 lakh share and sold 22.6 lakh shares on the same day for a profit of 9 paise per share) and the Zuber trading llp’s director is parth Bhavesh Zaveri, who is the designated partner of Sarita commossles LLP (#2 in the list of people who are going to be allotted preferential warrant). If this kind of day trader are going to get 5 crore preferential warrant, then god bless us all!!!

[vgsatwork]

@Logan Intresting question. For the subscribers of preferential warrant, they would not stand to lose irrespective of whether the price drops or raises. As long as the price is falling more than 25% from their warrant price, they can buy from the market and forego the initial 25% paid by them and take the same stake for same cost consideration. If the price rises by more than 13, it would be about 70% gain from their warrant price and even if they wanted to sell out and move on, they would still make a 25%+ return on their investment post their finance cost and short term capital gains charges. Only scenario, where I see they would be worse off (after making 65 crore investment) is if the share price hovers between 5.5 and 9.5 for the next two years. Hence, from their perspective, they would be hoping for the price to go up over the next 18 months in order to NOT to lose money on their investment.

From promoter stand point though, they are risking everything(Losing their control and willing to cede the control for 260 crores)

From retail investor stand point, we would stand to gain if price rises, but long term prospect would be doubtful if the promoter CEO loses control of the company

[vgsatwork]

There is no guarantee that these warranty holders would buy. If the price stays suppressed, they can choose to buy from market or let the warrants expire, there by losing their 25% initial sum paid. In strict sense, it is a speculative bet from these 59 people and they are not the kind of stable long term investors that the company needs. Only sure thing is that BCG is getting 65 crores now, for selling a derivate contract to a bunch of unknowns which can potentially end up give them 40% control of the company if they decide to bring in another 195 crores. There is significant risk for the promoter that they would lose management control, if the prices rise and these new investors decide to stay and act in unison

[vgsatwork]

There is no known/strategic investors in this list of individuals who are proposed allottees of warrant. Most of these people seems operators. Given this level of dilution to get such operator investors through preferential route, it sounds like BCG is in dire situation. Guess the perennial question of if the numbers are indeed correct would come again and all these strategic investors can convert their warrants to share and sell it any time after May 27th 2021 until May 2022 only suggests that selling pressure on the stock would continue and with promoter share holding at 22%, they wouldn’t clear control as some of these people would be controlling the board.

[vgsatwork]

If SKR keeps major (named share holders in SHP – both individuals and corporate) shareholders happy by NOT diluting the stake, he wouldn’t have any issues getting approval for the preferential warrant.Quick Back of the envelope calculation suggests that if all these shareholders have to keep their stake constant even as retail shareholders stake is diluted significantly, he would have the support of more than 60% shareholders and can push this through without any issues.34 crore shares could be explained using this theory. That way he would have incentivised these shareholders NOT to keep the price the low and let the stock appreciate and exercise their warrants…

[vgsatwork]

Warrants are being typically issued to promotors in a perfectly timed manner just before an expected improvement in business performance. This would help them make the most of the share price growth that would soon follow.

[vgsatwork]

The level of dilution is massive. Does this mean the promotors have been keeping the share price low and have been trying to time their preferential allotment with flow of positive news? Possible. But if it is not going to be issued to the promotors, whoever is coming in would be the largest shareholder of this company and that could mean some other corporate is buying out Brightcom as they would end up with 39% stake. Either case it’s a raw deal for the retail investors..Only consolation would be that market cannot ignore Brightcom anymore and a PE rating of atleast 5-10 is expected even without any other news flow..

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