Ways2Capital Reviews : Is The Rise In Electrosteel Steels Price Justified?

Electrosteel Steels Ltd (ESL) has witnessed a sharp rise in share prices over the past few days. The stock is currently trading at Rs14.45 per share, after trading up circuit for the past three sessions. However, the recent price movements has a lot to do with the restructuring of ESL’s equity structure.

As part of the restructuring of ESL, Vedanta, the new promoter, has restructured its equity. Vedanta, has also specified that they intend to delist ESL as part of the resolution plan.

As part of the equity restructuring, the company had implemented the following steps:

1) Issued 739.9cr shares to lenders as part of conversion of portion of debt to equity. This has increased the outstanding shares to 980cr shares.

2) The existing capital would decrease as face value would be reduced from Rs10 to Rs0.2 per share. Then, the shares would be reconsolidated in the ratio of 50 shares of face value Rs0.2 to 1 share of face value Rs10. As a result of this process, the existing shareholders would see their equity reduce by 98%. At the end of this restructuring, the number of shares with old shareholders and new lender shares would stand at 4.8cr and 14.8cr respectively (face value of Rs10).

As a result of the restructuring, shareholders have seen significant fall in value of their holdings. Consider the below example:
An investor buys 1 lakh shares at Rs1 per share for a transaction value of Rs1 lakh.
After adjustment, the shareholding would reduce to 2,000 shares at a face value of Rs10. Thus, the value of the holding would reduce to Rs20,000, an 80% reduction in value.

3) The company then issued 176.55cr shares to Vedanta Star.

Vedanta has stated that they intend to delist the company at an offer price of Rs9.54 per share. This is a 34% discount to the current market price. We recommend investors to not to initiate new positions in the stock.
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About Bhoomi Desai