The Dhoots proposal to purchase upto two per cent of the equity first at Rs 140 and subsequently at Rs 165 resulted in the market price rising above the proposedoffer price; thus offering shareholders a better exit opportunity for a larger quantity of their shares. This is borne out from the increase in volumes from one lakh shares traded per day to an average of one million shares a day. Against these volumes the total quantity that will be picked up by the Dhoots cannot exceed 1.2 million shares at the rate of Rs 165.

Similarly, in recent days the shareholders of Merind (takeover by Wockhardt), Bharati Telecom (proposed purchase of outstanding shares by the promoting family), Raasi Cement (takeover by India Cements), Indal (simultaneous takeover attempt by Sterlite and Alcan) and Anagram Finance (repurchase of shares by the promoters prior to a merger with ICICI) have benefitted. Most of the shareholders in these companies are small shareholders many of them running small businesses.

Moves such as these by companies or promoters to provide an above market price exit opportunity can only improve liquidity by unlocking resources. These resources could eventuallyfind its way back into the capital markets. Promoters and companies should be encouraged to do this but in a slightly more disciplined manner than what has been displayed in a few of these cases. In this regard, there should be two changes to facilitate this development. One, a reduction in long term capital gains tax and second, increasing the creeping accquisition limits from the present restrictive limit of two per cent.

SIEL: Paper chase

The first half results of SIEL for 1997-98 has vindicated the stand that the market has taken vis a vis the restructuring that has taken place in the company. The management has sold off a substantial portion of its stake in both Shriram Honda Power as well as Honda SIEL Cars Ltd (both jont ventures with Honda of Japan). The first six months of the current year has seen a profit of Rs 57.7 crore as part of the proceeds of the sale of Shriram Honda Power Equipment. The effect of the sale of three fourths of the share holding in Honda Siel Cars is yet to be feltand will be equally substantial.

At the time these asset and investment sales were announced the stock did react positively on the potential rewards to shareholders. In SIEL's case the return in the first half works out to Rs 21 per share, which could have justified an interim dividend. For the last full year that reflected a profit on sale of assets of Rs 64 crore (Rs 23.6 per share) the company barely paid out Rs 10 crore as a dividend or Rs 3.7 per share.

The investing community always suspected that the company would invent some creative way to retain the cash in its barely profitable businesses which it is in the process of expanding; rather than repay its shareholders this money. The company has justified these fears. It has chosen to offset the diminution in the value of investments in its subsidiaries of all things from these extraordinary gains; effectively reducing an inflow of Rs 57 crore to just Rs 13.8 crore or Rs 5 per share; thereby justifying not paying out a substantial dividend. Theaccounting standards on investments in subsidairies do not stop the company from doing this or reporting its income statement in this manner, but at the same time it is unfair to the SIEL shareholders.

Predictably, the stock has not reacted to the results at all, in all probability those that could have sold the stock have done so and moved on.