Special Event Digest (Spe.E.D) -...

Special Event Digest (Spe.E.D)

Alternative Research| | INDIA | 1 August 2013 ANSHUL BHARGAVA JIGNESH SHAH Head – Derivatives Research Director – Institution Desk Institution Desk Institution Desk Tel: +91 22 66679761 Tel: +91 22 66679735 [email protected] [email protected]

MONTHLY | INSTITUTIONAL USE ONLY

Prelude by Jignesh Shah, Director – Institution Desk [email protected] | +91 22 66679735

After a rise in the last quarter by 2.8%, the index slipped 1.7% this month. At

the beginning of the month, on the Index futures side, the FIIs are net long $500m, however, they are also heavy on long puts by $2.9b indicating an cautiously-bullish stance. The weakening USDINR continues to take a toll on the markets. The political situation (as election year draws near) & Government policy actions are taking centrestage to determine market sentiment.

The European & American austerity (rollback) measures, economic policies

continue to drive global sentiments. We hope you like this report and value your feedback & suggestions to make it

more useful. Do mail me your feedback at [email protected]. In case you would like to be added to our timely special events Reports mailing list, do let me know.

Major Events & Regulatory Updates by Anshul Bhargava, Head – Derivatives Research [email protected] | +91 22 66679761

As per our latest compilation, the Tata Motor DVR promoter holding had fallen to below 0.7%! We had said (and continue to maintain) that with the supply overhang (promoter supply) reducing significantly, spreads may not widen easily, while spread contractions are likely to be quicker in the future. In June, the spread was 52%, which expanded to 56% by July - a good level to enter piecemeal. Sesa Goa, Sterlite & other group companies were proposed to be merged into one company in February 2012. Thereafter, it has given many trading opportunities & gains. Bombay High Court at Goa’s approval is pending. We had suggested entering the merger spread @6.1% last month. One can again look to enter partly around +2%at the lowest especially if & when the High Court of Bombay at Goa approves it. Based on open interest movement opportunities on the roll spread (S/R Sesa, L/R STER) may crop up later this month. On 10th April 2013, Tata Steel & Tata Metalik announced a merger. The spread can be entered in a range of +7%-+10% and exit @+2%-+4%.

In May 2013, Zee announced bonus 6% redeemable preference shares (RPS).

The process can even take upto a year as it is subject to regulatory approvals. TECHM-SATYAM and JSWSTEEL-JSWISPAT merger trades were closed

during the month as swapped shares were received by investors during the month.

TABLE OF CONTENTS

Prelude

Pg. 1 | Prelude & Update

Special Events

Pg. 2 | TATA DVR SPREAD

Pg. 9 | STAN SPREAD

Pg. 14 | SESAGOA MERGER

Pg. 19 | TECHM MERGER

Pg. 23 | JSWSTEEL MERGER

Pg. 26 | TATA STL MERGER

Pg. 28 | ZEE RPS

Pg. 30 | OFS

Pg. 31 | BUYBACKS

Pg. 32 | M&A ACTIVITY

Pg. 34 | PAST COVERAGE

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SPECIAL EVENT DIGEST

Tata Motors DVR Spread Bloom Code : TTMT IS Equity & TTMT/A IS Equity Trade Idea & Background

In March 2008, Tata Motors announced the acquisition of Jaguar Land Rover (JLR) from Ford Motors for $2.3b in an all cash deal. This acquisition caused a strain on financial resources and in September 2008 it announced a rights issue of Ordinary shares and also of ‘A’ Ordinary shares (with differential voting) aggregating Rs 42bn. The ordinary shares were priced @Rs340/- (FV=Rs10/-, post-split price equivalent Rs 68/-) while the DVR shares were priced at Rs305/- (FV=Rs10, post-split price equivalent Rs 61/-) each. Holders of 6 Ordinary shares were entitled to subscribe for 1 share each of the Ordinary & DVR. DVR shareholders are entitled to 1 vote for every 10 DVR shares held. Each share are entitled to 5% more than the rate of dividend declared on the Ordinary shares. The DVR shares traded on 5th November 2008, at a premium to the Ordinary shares by 20%. In the weeks after that volumes dwindled away & the DVR premium turned into discount. At the peak, the discount of the DVR was a massive Rs 580/- (post-split price equivalent of Rs 116/-) or 53% - until 31st December 2011 and Rs141/- (11-May-2012) & 53% (until December 2012) and had compressed to Rs57 (14th September 2011) & 37% (23-October-2012) during this period. Upto June-2013, it had widened to a maximum of Rs 148/- (10-Jan-2013) & 53% (29-Dec-2011). In June-July 2013 it broke its year long lower band of 45% and widened to Rs. 160 / 56%!

In our report dated 11th May 2011 (after the 10th May, Tata Sons-Fidelity deal), we highlighted how the promoter holding in the DVR had transformed from 84% (in Dec2008) to a mere 17% (in May 2011). We had said that this transformation in shareholding is reducing the supply side of the equation and would eventually lead to contraction of the spread (discount). The transition of shareholding based on official filings is shown below: TATA MOTORS DVR SHAREHOLDING TRANSITION:

PARTICULARS JUN-13

MAR-13

DEC-12

SEP-12

JUN-12

MAR-12

DEC-11

SEP -11

JUN-11

MAR-11

DEC-10

DEC-09

DEC-08

Promoters 0.7% 0.9% 0.9% 1.7% 2% 4% 9% 9% 9% 19% 19% 57% 84%

FII 52% 49% 45% 45% 41% 39% 28% 27% 38% 40% 41% 19% 0%

DII 35% 39% 41% 41% 42% 43% 47% 48% 38% 30% 29% 15% 13%

Non-Institution 14% 11% 12% 13% 16% 14% 16% 16% 15% 11% 11% 10% 3%

Outstanding Shares (mn) [adjusted for Sep11 split ] 482 482 482 482 482 482 482 482 480 480 480 320 320No. Of Shareholders (k) 46.8 47.0 51.2 52.7 57.8 46.6 47.6 44.5 34.5 26.0 23.6 10.5 7.6

Avg Holding Per (Non-Promoter) Shareholder [adjusted for Sep11 split] 10k 10k 9.3k 9k 8k 10k 9k 10k 14k 15k 16k 13k 7k Source : NSE, BSE

Another factor in favour of the Tata Motor’s DVR is that it has a dividend yield of 1.5% compared to 0.7% for the ordinary share (dividend declared in May 2013). The stock had previously split (Rs 10 FV to Rs 2) in 12th September 2011.

Exchange filings on 6th September 2011 revealed that Tata Sons (promoter group) had bought 1.19mn ordinary shares (post split equivalent of 5.94mn shares) worth Rs900mn at an average of Rs 759/- each (post-split Rs152/-) in a range of Rs144/- & Rs161/- (post split prices) in the month of Aug (16th to 24th). In the first week of September’11 they bought 0.33mn shares (1.66mn post split) @ Rs 150.33/- per share (post-split equivalent). This is not surprising and is in accordance with our hypothesis. Sep’11 exchange filing showed promoter holding in Tata Motors ordinary shares has increased from 34.84% to 35.05% over the quarter.

In our report dated 20th July 2011, we highlighted that the Promoter stake had fallen to single digits (9%) as per June quarter filing. We also highlighted how the approximately $490m worth zero coupon foreign currency Convertible Alternative Reference Securities (CARS) redeemable on 12th July 2012 could be a temporary dampener to the contraction (and a possible opportunity). However, we reasoned, it was most unlikely that the CARS will convert to shares – which it did (converted to Equity) – we stood vindicated.

Further, 8 Foreign Currency Convertible Notes due in 2014, were allotted 308,225 ordinary shares (representing 61,645 ADS) in February 2013. In May 2013 the company allotted 8.9mn underlying Ordinary shares (representing 1.8m ADSs) and 2.9m Ordinary share arising out of conversion of 306, 4% Foreign Currency

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– 3 of 35 –

Convertible Notes due in 2014 of US$100,000 each. In June 2013, the Company allotted 8mn underlying Ordinary Shares of Rs. 2/- each (representing 1.6mn ADSs of Rs. 10/- each at a premium of 590.595 each) and 8.8mn Ordinary Share of Rs. 2/- each at a premium of Rs. 118.119 each arising out of conversion of 435, 4% Foreign Currency Convertible Notes due in 2014 of US$100,000 each. With the above conversions, there would not be any outstanding Notes.

On 2nd April 2012 we highlighted that the March 2012 quarterly shareholdings were yet to be released, however our analysis indicated Tata Motors DVR promoter shareholding to have dropped to just 4%! Based on insider filings in March 2012, Tata Sons Ltd sold about $72mn worth Tata Motors DVR shares. Tata Sons Ltd bought about $10mn worth Equity shares. The low promoter shareholding was confirmed by the exchange filing of 20th April 2012. In April 2012, based on the insider activity we estimated that the promoter holding had fallen to 2%. This was confirmed by the 19 July 2012 official company filings. As per insider activity in September 2012, we estimated the promoter holding had fallen to 1.7%, which was confirmed in mid-October 2012. Based on insider activity in Q3 we expected it to have fallen to just 0.9%, which was confirmed in mid-January 2013 We summarise the recent insider/promoter disclosures:

TATA MOTORS EQUITY & TATA MOTORS DVR SHARES INSIDER/PROMOTER ACTIVITY

EQ/DVR B/S QTY SHARES PRICE (RS)

VALUE $MN COMMENTS

JUNE & JULY2013

na MAY 2013 DVR Sell 0.63mn 166.9 1.9 Tata Investment Corp sold some of its DVR holding. APRIL 2013 DVR Sell 0.15mn 163.3 0.5 Tata Investment Corp sold some of its DVR holding. JANUARY, FEBRUARY & MARCH 2013

na DECEMBER 2012

DVR Sell 3.3mn 166.12 10.1 Tata Industries sold all its DVR holding. Tata Sons Ltd also sold some EQ Sell 0.5mn 269.6 2.5 Tata Investment Corp Ltd sold

NOVEMBER 2012 DVR Sell 0.4mn 159.60 DVR Tata Sons Ltd

OCTOBER 2012 DVR Sell 0.2mn 169.2 0.7 Tata Industries Ltd & Sitmo Investment Ltd

SEPTEMBER 2012 DVR Sell 1.65mn 152.4 4.7 Tata Industries Ltd & Tata Investment

AUGUST 2012 na

JULY 2012 EQ Buy 2.3mn 242 10.1 Tata Sons Ltd

JUNE 2012 EQ Buy 2.4mn 244 10.7 Tata Sons Ltd EQ Buy 0.4mn 234 1.8 Mr Ratan Naval Tata

MAY 2012 DVR Sell 0.18mn 177 0.6 Tata Investment sold

APRIL 2012 DVR Sell 8.6mn 164 27 Tata Sons, Tata Investment & Tata Industries Ltd sold

MARCH 2012 EQ Buy 1.9mn 268 10 Tata Sons bought increasing stake to approx 25.51%

EQ Sell 2.5mn 270 13 Sold mainly by Tata Industries, Tata Investment, Kalimati Investment, Tata International

DVR Sell 24.5mn 152 73 Tata Sons & Tata Industries Ltd sold ~5%+

Source: PhillipCapital, NSE, BSE

Note: Appropriate approximations made


Reasons for the DVR Spread :

The DVR shares will not be convertible into Ordinary Shares at any time (in normal circumstances). Also, we do not advocate price parity between the 2 equity shares for a couple of factors in favour of the DVR discount remain. In general, any promoter would shy away from DVRs (sub-ordinate voting rights). No DVR shares are pledged by the Tata Motors promoters and are also off-loading the DVR shares since Dec 2008.

Reasons for subordinate-voting shares (DVR) to trade at a discount: DISCUSSION & COUNTER REASONS S. NO. REASONS DISCUSSIONS & COUNTER REASONS

1. Ordinary share is part of indices (local & international) - thus long only funds, index arbitrageurs etc do not buy the DVR.

With a market cap of just $1.5bn, the DVR is unlikely to meet the criteria laid down by the major indices (NIFTY, Sensex, MSCI) in the medium term.

2. Liquidity gets liquidity - DVRs are relatively new instruments while the ordinary share has been trading for decades. Investors generally flock to a more liquid instrument.

- Liquidity in Dec-2008 was slim indeed but has picked up. In terms of number of shares traded, on an average the DVR trades 24% of the ordinary share volumes. - In value terms, it now clocks an average of $6m-$10m per day. - The DVR’s inclusion in the F&O is a definite shot in the arm.

3. Control : A promoter is concerned about control & hence will "pay" an extra price for votes (prefer ordinary shares). As displayed, the promoters stake in the DVR fell ruthlessly from 84% in Nov-08 to less than 1% (Dec’12). The promoters hold 35% of the $15.4bn market cap (ordinary shares).

- Non-promoters (minority) may buy ordinary shares if there is a serious conflict between the promoters & the minority. Tata Motors does not seem to be in this category. - Another reason to buy the regular share is if there is a battle for control/buy-out etc in the offing – this also does not seem to be happening in the near future. - The supply side (promoters) of the equation is definitely slimming down. - Institutional holding in the DVR is 80%-90% which can be interpreted as a show of confidence in the management

Timetable:

This is a trade idea based purely on demand-supply dynamics. There is no “schedule”. The company’s decision of whether, the CARS will convert to Ordinary shares, DVR shares or ADS was previously an important factor (for timing) which we had argued favorably. We reasoned that the conversion into DVR is unlikely. Further, Foreign Currency Notes due in 2014 were converted to ADS/Ordinary shares in February, May & June 2013. Current Returns & Trade Dynamics

The ordinary Tata motors stock futures traded at a discount till May’11 end and since then were trading mostly

at a premium till September’11 beginning – thereafter it traded mostly at a premium/mixed. Rolls have been mainly at a premium. April’12 Rolls of Tata Motors was soft. Roll spread in May’12 - June’13 were firm. Both scrip’s futures mostly trade at a healthy premium & roll also at a good premium.

The roll spreads are graphed below:

TATAMOTORS PREMIUM/DISCOUNT (BPS) TATAMOTORS ROLL SPREAD (BPS)

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– 5 of 35 –

DVR PREMIUM/DISCOUNT (BPS) DVR ROLL SPREAD (BPS)

LHS: Futures prices; RHS: bps / Roll bps

Source: PhillipCapital , NSE

The spread movement is graphed below: DVR SPREAD (RS & ALSO %)

Upper Graph LHS - Underlying share prices; RHS: Spread in Rs Lower Graph - RHS : Spread in %

Source: PhillipCapital , NSE, BSE

On 11th May 2011, when we first initiated coverage, the spread was Rs 103/- & 43%. Since then, the spread thereafter contracted to Rs 57/- in September 2011 & 37% in October 2012. Since then it has slid back to a maximum rupee discount of Rs 148/- (Jan’13) and a percent discount of 53% (Dec’11). After trading below 45% discount for about a year, it fell through those levels by mid-June 2013. As of close of June’13 the discounts were Rs140/- & 50% and by July-end it widened to Rs160/56%.

We have noticed that the spread tends to compress in a falling phase while widening in a bullish phase for possible reasons mentioned previously.

TATAMOTORS vs DVR Spread(Rs)

-200

-150

-100

-50

0

50

31-J

ul-1

319

-Jun

-13

9-M

ay-1

321

-Mar

-13

7-Fe

b-13

27-D

ec-1

212

-Nov

-12

27-S

ep-1

214

-Aug

-12

3-Ju

l-12

22-M

ay-1

210

-Apr

-12

24-F

eb-1

211

-Jan

-12

30-N

ov-1

114

-Oct

-11

30-A

ug-1

118

-Jul

-11

6-Ju

n-11

25-A

pr-1

19-

Mar

-11

24-J

an-1

110

-Dec

-10

28-O

ct-1

016

-Sep

-10

4-A

ug-1

023

-Jun

-10

12-M

ay-1

029

-Mar

-10

10-F

eb-1

029

-Dec

-09

13-N

ov-0

929

-Sep

-09

14-A

ug-0

93-

Jul-0

922

-May

-09

2-A

pr-0

916

-Feb

-09

1-Ja

n-09

17-N

ov-0

8

Abs

olut

e S

prea

d (R

s)

0

50

100

150

200

250

300

350

400

Pric

e

Spread_RsEQDVR

TATAMOTORS vs DVR Spread%

-60

-50

-40

-30

-20

-10

0

10

Spre

ad%

Spread%

11-MAY-2011


Status & Our Comments

As per latest filings the promoters are left with just 0.7%. We continue to suggest entering this trade,

piecemeal. Promoters have been offloading DVR shares (more scanty now) leading to softening of the spread. In the light of the fact that the year-long band was broken in June’13 (and there has been no significant respite from expansion), we suggest piecemeal entry at these levels 56% (very good level to enter the spread). With the supply overhang (promoter supply) reducing significantly, spreads contractions are likely to be quicker in the future. Recommendation Summary:

DATE RECOMMENDATION REASON

1-Jul-2013 45% levels broken. Use widening as opportunity. ~50%+ spread good level to enter

3-Jun-2013 Use any widening as opportunity. Don’t expect much widening

~45%+ spread is a good level to enter

2-May-2013 Use any widening as opportunity. Don’t expect much widening


1-Apr-2013 Use any widening as opportunity. Don’t expect much widening


4-Mar-2013 Use any widening as opportunity. Don’t expect much widening


4-Feb-2013 Use any widening as opportunity. Don’t expect much widening


2-Jan-2013 Use any widening as opportunity. Don’t expect much widening


3-Dec-2012 Use any widening as opportunity. Don’t expect much widening


1-Nov-2012 Use any widening as opportunity. Don’t expect much widening


1-Oct-2012 Use any widening as opportunity. Don’t expect much widening

43%+ spread is a good level to enter

3-Sep-2012 Use any widening as opportunity. Don’t expect much widening

43-45%+ spread is a good level to enter

1-Aug-2012 Use any widening as opportunity. Don’t expect much widening

43-45%+ spread is a good level to enter

2-Jul-2012 Enter aggressively (gave 8% returns by 20th July) 46%+ spread is a good level to enter

4-Jun-2012 Recommended to enter if spread widens Spreads may not widen back to 53% levels.

2-May-2012 Recommended to enter as promoter holding only 2% (as per our estimate)! CARS also not converting to DVR.

Rs 137/-/44% is a favourable level to enter the spread trade.

2-Apr-2012 Recommended to enter as promoter holding only 4% (as per our estimate)!

Rs 119/-/43% is a favourable level to enter the spread trade – 50%+ seems unlikely as promoter holding dipped to 4%.

1-Mar-2012 Recommended to enter Rs 115/-+ is a favourable level to enter the spread trade.

1-Feb-2012 Recommended to enter aggressively Rs 124/-+ is very good level to enter the spread trade.

3-Jan-2012 Recommended to enter Rs 94/- is favourable level to enter the spread trade.

2-Dec-2011 Recommended to enter but, degree of aggression low Rs 80/- is not so good a level to enter the spread trade.

2-Nov-2011 Recommended to enter more aggressively around Rs 94/- levels.

Good level to enter.

3-Oct-2011 Spread has compressed in favour, however room still left.

Spread has room left.

5-Sep-2011 Build position The spread is of large magnitude 5-Aug-2011 Build position The spread is of large magnitude

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Report initiating coverage (Buy) on the spread : 11-May-2011 ; updates on 20th & 21st July 2011

Miscellaneous Bulk Deals:

RECENT BULK DEALS IN TATAMTRDVR

DATE CLIENT NAME BUY / SELL

QTY ('000)

VALUE (MN) PRICE

10-Apr-13 Merrill Lynch Capital Markets Espana SA BUY 6341 $17.8 151.85 10-Apr-13 The Royal Bank Of Scotland Asia Merchant Bank Singapore SELL 6341 $17.8 151.85 29-Nov-12 Morgan Stanley Asia (Singapore) PTE SELL 2500 $7.4 161.01 29-Nov-12 Morgan Stanley Asia (Singapore) PTE SELL 2500 $7.4 161.07 06-Nov-12 The Royal Bank Of Scotland Asia Merchant Bank Singapore

Ltd BUY 3025 $9.2 165.75 06-Nov-12 ABN Amro Bank NV SELL 3025 $9.2 165.75 10-May-11 Fidelity Investment Trust Fidelity Series Emerging Markets BUY 745 $11.3 680.9 10-May-11 Tata Sons Ltd SELL 1700 $25.7 680.5

07-Jul-11 Waddell And Reed Investment Management Company A/C Ivy Fund SELL 1345 $17.1 573.3

07-Jul-11 Waddell And Reed Investment Management Company A/C Ivy Fund SELL 2572 $32.7 573.0

07-Jul-11 Bajaj Allianz Life Insurance Company Limited BUY 1500 $19.1 573.0

None Since July-2011

Source: NSE, BSE

Shareholding in December 2008:

As on 31st Dec 2008, the Shareholding of the Ordinary & DVR shares was as under: SHAREHOLDING AS ON DECEMBER 31, 2008

PARTICULARS TATA MOTORS DVR Promoter 48% 84% Institution 30% 13% Non-Institution 22% 3% Total outstanding shares (Not adjusted for Sep’11 split)

450 mn shares 64 mn shares

No. of Share Holders 377k 7.6k Avg holding per (Non-Promoter) shareholder (Not adjusted for Sep’11 split)

620 1350

Source: NSE, BSE

As on 31st Dec 2008, other than the promoters, IFCI Ltd & JM Financial held stakes of 12.8% & 2.2% respectively

Major Shareholding:

The shareholding is mainly held by institutions (87%) and only 14% with non-institutions. The major

(>1%) holders are: TATA MOTORS DVR SHAREHOLDING AS ON JUNE 30, 2013

S.NO. NAME OF THE SHAREHOLDER

NO. OF SHARES

(MN)

SHARES AS % OF TOTAL NO.

OF SHARES

1 HSBC Global Investment Funds A/c HSBC Global Investment Fund Mauritius Limited

30.8 6.4

2 HDFC Trustee Company Ltd HDFC Top 200 Fund 28.5 5.9

3 Mathews Asia Dividend Fund 25.4 5.3

4 HDFC Trustee Company Ltd -HDFC Equity Fund 25.2 5.2

5 Swiss Finance Corporation (Mauritius) Ltd 15.2 3.2

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6 Eastpring Investments India Equity Open Ltd 11.2 2.3

7 Government of Singapore 10.7 2.2

8 HDFC Trustee Company Ltd - HDFC Prudencefund 9.8 2.0

9 Merril Lynch Capital Markets ESPANA S A S V 9.5 2.0

10 Government Pension Fund Global 9.0 1.9

11 Master Trust Bank of Japan Ltd A/c HSBCIndian Equity Mother Fund 8.2 1.7

12 DSP Blackrock Top 100 Equity Fund 8.0 1.7

13 HSBC Global Investment Funds A/c HSBC Global Investment Fund Bric Equity

7.5 1.6

14 ICICI Prudential Focused Bluechip Equity Fund 7.3 1.5

15 SBI Magnum Taxgain Scheme 1993 7.2 1.5

16 HDFC Trustee Company Ltd - HDFC Tax Saver Fund 6.7 1.4

17 Reliance Life Insurance Company Ltd 5.8 1.2

18 Robeco Capital Growth Funds 5.7 1.2

19 Frankline Templetion Mutual Fund A/c Franklin Indian Bluchip Fund 5.7 1.2

20 Dragon Peacock Investments Ltd 5.3 1.1

D E Shaw Oculus Investments Bi-Fi Mauritius Ltd 5.1 1.1

21 Frankline Templetion Investment Funds 4.9 1.0

TOTAL 253 52.5

Source: NSE, BSE

Corporate Announcements etc:

Board meeting on 29th May 2013, recommended dividend of Rs 2/- & Rs2.10/- (ex 30th July) . AGM on

21st Aug 2013. Q3 results on Feb 14, 2013 The Board of Directors on December 13, 2012 announced the appointment of Mr Cyrus P Mistry as the

Chairman of the Board w.e.f. December 28, 2012 on the retirement of Mr Ratan N Tata . The Board conferred on Mr. Tata the honorary title of Chairman Emeritus.

On 7th November 2012, the company announced quarterly results. On 13th September 2012, the company announced regarding the appointment of Mr Karl Slym as the

Managing Director of the Company w.e.f. October 1, 2012. On 18th July, the company informed that its 67th Annual General Meeting (AGM) will be held on August 10,

2012. On 29th May 2012, the company announced quarterly results. Click here to see the official press release. On 14th February 2012, the company announced quarterly results. Click here to see the official press release. On 14th November 2011, the company announced quarterly results. Click here to see the official press

release. .

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http://www.bseindia.com/xml-data/corpfiling/AttachHis/Tata_Motors_Ltd_091112.pdf

http://www.nseindia.com/content/corporate/TML_Pr_29052012.zip

http://www.nseindia.com/content/corporate/TataMotor01_pr_14022012.zip

http://nseindia.com/content/corporate/TataMotors_pr_14112011.zip

http://nseindia.com/content/corporate/TataMotors_pr_14112011.zip


STAN Spread Bloom Code : STAN IS Equity / STAN UK Equity / 2888 HK Equity Trade Idea & Background

On June 11, 2010, the first (till now the only) IDRs (India Depository Receipts) of Standard Chartered Bank

were listed on the Indian bourses - an issue of 240mn IDRs priced at Rs104/-. Ten STAN DR are equivalent to 1 STAN Equity shares. We had released a note comparing the 3 listings of STAN on 24th May 2010. There was a 1 year restriction for converting the IDR to the Equity share. Vice versa was not permitted by RBI.

The spread began trading around 10%-16% (DR trading at a discount), and over the year, the spread reduced to around 3% a couple of days before the eligibility date. The reduction being on account of the opportunity to redeeem DRs into Equity Shares - Buy DRs here, Sell in UK; apply to redeem DRs to Equity shares; get shares in CREST account within 10days and cover short in UK.

However, two working days before the eligibility date, the SEBI changed the regulation to “redemption of the IDRs shall be permitted only if the IDRs are infrequently traded on the stock exchange(s) in India”. This caused the spread (& price) to go haywire. The DR gapped down by ~20% as an initial reaction.

Other drawback of IDRs was that they were not allowed to participate in the rights issues. The rights issue in 2010 saw IDR holders receive Rs 4.60/- in lieu of the rights entitlements (Nov2010). The new regulation (23rd September) enables IDR investors to participate in right issues. The amendment has been made vide Chapter XA and can be seen here. On March 16, 2012, in the Budget speech, the Finance Minister, said that changes in the IDR regulations will be made permitting two-way-fungibility. This was received by the STAN IDR holders with much cheer as prices hit the upper circuit. One may recollect that in our interactions in April/May 2011 with the RBI, they had indicated that they were comfortable in allowing conversion of IDRs into foreign equity after the initial 1-year period (as per the law prevalent then). On 28th August, 2012, the SEBI announced proposal to permit 25% of the original issue size per financial year. Legal framework to implement this and also reverse conversion is to be announced in the future.

On 8th October 2012, the Ministry of Corporate Affairs (MCA) notified modifications in the Companies (Issue of Indian Depository Receipts) Rules, have come into effect from October 1 - a holder of IDRs may transfer the IDRs, may ask the domestic depository to redeem them or, any person may seek re-issuance of IDRs by conversion of underlying equity shares, subject to the provisions of Foreign Exchange Management Act and SEBI rules at the time.

On 27th February 2013, the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations were amended to permit fungibility of IDRs. Shortly thereafter on 1st March 2013, the SEBI issued Guidelines for enabling partial Two-Way fungibility of Indian Depository Receipts. Click here for the detailed guidelines, a summary is given below:

• 25% of the 240mn (i.e.60mn) IDRs are eligible for redemption/conversion into equity shares every year. For this, STAN will issue advertisement inviting interest in the same. The SEBI has given 3-months time for this. 7-day (minimum) window to be available in a (minimum) every quarter.

• Option by issuer to IDR holders: o Converting IDRs into equity shares, and/or o Converting IDRs into equity shares, selling the shares in the foreign market & providing the

sale proceeds to the IDR holders (max cost 5% of sale proceeds). • IDRs available for fungibility in that window will be disclosed before opening of that window. • Excess requests for conversion to be done on a proportionate basis • 20% reservation for Retail investors • Issuer may convert shares to IDRs depending on headroom & RBI rules. • Available headroom, significant conversion & reconversions shall be disclosed on continuous basis • Quarterly option (11Mar/11Jun/11Sep/11Dec - quarterly listing anniversaries) of STAN to switch to

“guidelines issued for new issues” giving 1-month advance notice. Once exercised, it cannot be reversed. New IDR issues-guidelines provide that (after a year of listing) the fungibility should be on a continuous basis.

• STAN to lay down detailed procedure

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http://www.mfglobal.in/research/StanC_IDR_note_MAY10.pdf

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1316774298578.pdf




On 29th April 2013, STAN announced operating guidelines of two-way fungibility, as summarised below: Window open : 31MAY to 7JUN 2013 IDRs redeemable : 60mn (25% of 240mn) Minimum : 10 IDRs & multiples therof Allocation : Proportionate if it exceeds limit Reservation : 20% (12mn) reserved for Retail (Rs 200k i.e. 1730 IDRs) Fee : Rs0.303 (~USD0.05/share, incl service tax) Schedule:

> Redemption Window : T to T+7 > Finalise basis : ~T+14 > Announcement of results : ~T+17 > Credit to UK CREST account : ~T+18/T+19 > Intimation to IDR holders : ~T+20

Timetable:

The current law (being phased out) permits redemption only if the DR is illiquid and this test would be applied on 30th June & 31st December of each year. It failed this test in June 2011, December 2011, June 2012 & December 2012. The 1st window for conversion of IDRs to shares opened on 31st May 2013 for 7 days which received a huge response. From 1-July-2013, window for conversion of equity shares to IDR was opened (till headroom left) on a continuous basis. . Current Returns & Trade Dynamics

The spread had gone haywire and widened to 60%+. After 16th March 2012, it has traded around 30-40%. In April 2012, the spread contracted to 26% but as the rupee depreciated to 85, the spread widened to 34%. In May it ranged between 24%-29%. In June in expanded from 26% to 36% but fell back to 32% by the month end. In July it ranged between 22%-30% while in August it traded between 24% to 33% till the announcement of the new regulations, thereafter it fell to 20%-22%. In September & October 2012, it traded in a range of 19%-25%. In November it traded in a range of 20%-26%. In December 2012 it widened to 30%. In January 2012, it squeezed to 19% and then widened to 23% towards the end of the month and further to 19% by end of February 2013. By mid-March it squeezed to 13.5% and then expanded back to 19% by the month end. In April, it traded in a range of 13.5%-14.5% while in May (ahead of the window) it traded in a range of 13%-14%. In June it traded in a range of 11%-16% while in July it widened slightly to a range of 13%-19%

First half of December 2011 saw $38m worth bulk deals were reported, while $11m worth deals were reported in January (see next page for details) & $5mn in March 2012. Thereafter, the bulk deals took place in May’13.

Prior to the redemption window opening we had analysed the shareholding pattern identifying the likely candidates that may redeem the IDRs are given below (As of 31st March 2013). The estimated outcome is also shown:

Particulars SH 31 March 2013 Comment Ahead of Window (31May)

Redeemed (Estimated) shares

Redeemed %

SH 30 JUNE 2013

FII 83.5% many may look to convert 50 mn 83% 83.6%

MF 9.5% May look to convert 8 mn 13.5% 8.2%

Banks, FI, Insurance 0.0% Few may convert - - 0.0%

NRIs 0.3% - 0.2 mn 0.3% 0.3%

Others 6.7% Few may convert 1.8 mn 3.2% 7.9%

Total 100% 60 mn 100% 100%

Source : NSE, BSE, PhillipCapital


With the GBPINR crossing 75 and further depreciating to 80+ levels, had caused the spread to widen to 50%. The spread compressed from 53% to 33% in early January. However, it had again widened to 63%+ on 1st Feb 2012.

– 10 of 35 –

http://investors.standardchartered.com/en/idr.cfm


– 11 of 35 –

After dipping to 55% in early-March it again widened to 64% by mid-March 2012. Over the months it has reduced to sub-20% levels.

The first conversion window (IDR to shares) was opened for 7 days beginning 31st May 2013 for 25% of the outstanding shares (60mn IDRs). It saw a full response and 60mn IDRs were converted to 6mn shares accordingly. After the redemption window close, initially, STAN IDR is expected to see lower interest, which may pick up towards corporate announcements, wider spreads and the next conversion window (May/Jun 2014). One can initiate spread at these levels keeping a watch on the GBPINR. With the new regulations there seems to be some more room left for compression but limited. Conversion trades can be looked at a wider spread. Equity to IDR conversion window seems irrelevant at this point. STAN SPREAD MOVEMENT VS GBP

LHS – Spread % (blue area); RHS - GBPINR (black line) Source: PhillipCapital , NSE, BSE

Recommendation Summary:


1-Jul-2013 With next conversion window still 11 months+ use expansion to enter trade

Next conversion window to be in May/Jun 2014

3-Jun-2013 Initiate spread; Conversion trade possible. New legislation announced, can compress more – although limited (12%-15%)

2-May-2013 Initiate spread; Conversion trade possible. New legislation announced, can compress more – although limited (12%-15%)

1-Apr-2013 Initiate spread New legislation announced, can compress more – although limited (12%-15%)

4-Mar-2013 Initiate spread New legislation announced, can compress more – although limited

4-Feb-2013 Initiate spread New legislation on way, use rupee weakness to enter

2-Jan-2013 Initiate spread New legislation on way, use rupee weakness to enter

3-Dec-2012 Initiate spread New legislation on way, use rupee weakness to enter

1-Nov-2012 Initiate spread New legislation on way, use rupee weakness to enter

1-Oct-2012 Initiate spread New legislation on way, use rupee weakness to enter

3-Sep-2012 Initiate spread New legislation on way, use rupee weakness to enter

1-Aug-2012 Initiate spread New legislation on way, use rupee weakness to enter

2-Jul-2012 Initiate spread New legislation on way, use rupee weakness to enter

4-Jun-2012 Initiate spread New legislation on way, use rupee weakness to enter

2-May-2012 Initiate spread New legislation on way, use rupee weakness to enter

2-Apr-2012 Initiate spread New legislation on way, likely to add to reasons for

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compression

1-Mar-2012 One can initiate spread Though, the rupee has come back to reasonable levels, the spread has not followed yet.

1-Feb-2012 Rupee appreciated to 79.5 one can initiate spread New trading range as depreciation of the Rupee beyond recent levels

3-Jan-2012 If rupee appreciates to 79.5 than one can look to initiate spread

New trading range as depreciation of the Rupee beyond recent levels

2-Dec-2011 If rupee appreciates to 79.5 than one can look to initiate spread

New trading range as depreciation of the Rupee beyond recent levels

2-Nov-2011 Trade spread within 25-30% range, more towards lower end

Post June’2011, this is the new trading range

3-Oct-2011 Trade spread within 20-28% range, more towards lower end

Post June’2011, this is the new trading range

5-Sep-2011 Trade spread within 20-27% range Post June’2011, this is the new trading range

5-Aug-2011 Trade spread within 20-27% range Post June’2011, this is the new trading range

Report initiating coverage on the STAN DR (India) listing/spread : 24-May-2010

Miscellaneous Recent bulk-deal activity is given below:

BULK DEALS IN STAN


QTY (‘000 SHARES)

VALUE (MN) PRICE

28-May-13 Macquarie Bank Limited BUY 1533 $ 3.2 116 28-May-13 Merrill Lynch Capital Markets Espana S.A. Svb BUY 1247 $ 2.6 116 02-Feb-11 Swiss Finance Corporation (Mauritius) Limited BUY 1650 $ 4.3 116.2 18-Feb-11 Swiss Finance Corporation (Mauritius) Limited BUY 1450 $ 3.7 114.5

18-Feb-11 Reliance Mutual Fund SELL 1450 $ 3.7 114.5

19-May-11 Swiss Finance Corporation (Mauritius) Limited BUY 2000 $ 4.9 111.0

23-May-11 The Royal Bank Of Scotland N.V. BUY 1985 $ 4.9 111.5

06-Jun-11 Credit Suisse (Singapore) Limited A/C Credit Suisse (Sing SELL 3498 $ 7.3 94.4

06-Jun-11 Swiss Finance Corporation (Mauritius) Limited BUY 750 $ 1.6 93.7

06-Jun-11 ICICI Prudential M F A/C Dynamic Fund BUY 2982 $ 6.4 97.0


06-Jun-11 Swiss Finance Corporation (Mauritius) Limited SELL 4545 $ 9.6 95.3

06-Jun-11 Swiss Finance Corporation (Mauritius) Limited SELL 7006 $ 14.9 95.7

06-Jun-11 Deutsche Securities Mauritius Ltd. SELL 1300 $ 2.8 96.3

07-Jun-11 Credit Suisse (Singapore) Limited A/C Credit Suisse (Sing BUY 1206 $ 2.6 97.5

07-Jun-11 Goldman Sachs Investments Mauritius I Ltd BUY 4232 $ 9.2 97.7

07-Jun-11 UBS AG Swiss Finance Corporation (Mauritius) Ltd SELL 3050 $ 6.6 97.1


16-Jun-11 Deutsche Securities Mauritius Limited SELL 2029 $ 4.2 92.1

20-Jul-11 Goldman Sachs Investments Mauritius I Ltd SELL 1420 $ 2.9 93.1

15-Sep-11 Goldman Sachs Investments Mauritius I Ltd SELL 1638 $ 2.7 80.0

2-Dec-11 Bnp Paribas Arbitrage SELL 1942 $ 3.0 83.0

2-Dec-11 Morgan Stanley Mauritius Company Ltd BUY 2942 $ 4.6 83.0

13-Dec-11 Goldman Sachs Investments Mauritius I Ltd SELL 3000 $ 4.6 82.0

13-Dec-11 Morgan Stanley Mauritius Company Ltd BUY 3049 $ 4.7 82.0

14-Dec-11 Global Strategic Investments Ltd SELL 6978 $ 10.7 81.0

– 12 of 35 –


14-Dec-11 Integrated Core Strategies (Asia) Pte.Ltd. BUY 6978 $ 10.7 81.0

4-Jan-12 Macquarie Bank Limited BUY 1450 $ 2.3 82.5

17-Jan-12 Goldman Sachs Investments Mauritius I Ltd BUY 2685 $ 4.4 84

17-Jan-12 Integrated Core Strategies (Asia) Pte.Ltd. SELL 2685 $ 4.4 84

19-Mar-12 Deutsche Securities Mauritius Limited BUY 2371 $ 4.8 102.6 None Since Sep-2011

Source : NSE, BSE

Corporate Announcements etc: The Company announced that the Board of Directors will meet on August 06, 2013 for the purpose of

considering and approving the release of the Company's announcement of interim results for the six months ended June 30, 2013 and the declaration of an interim dividend.

The Company announced that in its board meeting on 5th March 2013, it would consider declaring final dividend. Consequently, the ex-date is 14th March 2013. 56.77 US$ cents per ordinary share equivalent dividend payable to IDR holders by 14 May 2013.

On 17th July, The Company announced that in its board meeting on 1st August 2012, it will consider declaring interim dividend. Consequently, the ex-date was 9th August 2012.

The company filed major shareholding as on 30th June 2012 (Link) The company filed major shareholding as on 31st March 2012 (Link) The company announced announcement its results for the year ended December 31, 2011 and also confirms the

2011 final dividend of 51.25 US$ cents and a dividend record date of March 09, 2012 (please note the dividend of 51.25 US$ cents is per ordinary share and that ten IDRs represent one ordinary share). The Indian Rupee conversion will be made on May 04, 2012. The dividend of Rs 2.67 per IDR was paid to the IDR holders on May 15, 2012.

It went ex-dividend on 11-Aug-2011 with the IDR holders receiving only cash dividends in INR. Other shareholders had an option to accept share dividend or in either currency (GBP/USD/HKD). On 29th September, the company announced “In reference to the Company's 2011 Interim Dividend payable on October 07, 2011, the Company confirms that IDR holders will receive INR 1.13797125 per IDR”.

– 13 of 35 –

http://www.bseindia.com/xml-data/corpfiling/AttachHis/Standard_Chartered_PLC_100712.pdf

http://www.bseindia.com/stockinfo/AnnPdfOpen.aspx?Pname=Standard_Chartered_PLC_130412.pdf


– 14 of 35 –

Sesa Goa Merger Bloom Code : SLT IS Equity , SESA IS Equity Trade Idea & Background

With a view to consolidate & simplify group structure, on Saturday, February 25, 2012, an all stock intra-group

merger of Sesa Goa, Sterlite Industies, Vedanta Aluminium & Madras Aluminium was announced. The transaction would eliminate any cross holdings, improve capital structure, improve allocation, enhance fungibility of cash flows etc. The transaction also includes the transfer of 38.8% held by Vedanta in Cairn India to the new entity alongwith associated debt of $5.9bn. Post transfer, the new entity will hold 58.9% of Cairn. The transaction is likely to cause cost saving to the tune of $200m per annum. It is envisaged to be EPS accretive to shareholders of Sesa Goa, Sterlite & Vedanta shareholders. Vedanta Plc will own 58.3% in the new entity.

The new entity to be named “Sesa Sterlite” and is expected to be 7th largest (based on combined EBITDA- $5.3bn CY11) global diversified natural resources major. In terms of EBITDA, diversification will be in Zinc-Lead (29%), Silver (4%), Copper (6%), Aluminium (3%), Iron Ore (17%), Power (2%), Oil & Gas (39%). The diversification is expected to reduce volatility of earnings.

Shares of Sesa Sterlite will be listed in India while its ADS will be listed on NYSE. Sterlite ADS holders will

receive appropriate Sesa Goa ADS. Currently 1 Sterlite ADS=4 shares

Independent valuations have been done and Fairness opinions have been taken. In terms of the scheme of arrangement:

• Sesa Goa to issue 3 shares for every 5 shares of Sterlite • Sesa Goa to issue 72m (2.4% of Seas Sterlite) shares to Vedanta for its 70.5% interest in VAL • Sesa Goa to issue 79m (2.7% of Sesa Sterlite) shares to shareholders of MALCO for 3.6% ownership in

Sterlite & its power assets. • Vedanta transfers 38.8% of CAIRN India held by it along with associated debt ($5.9bn). However, the

debt will continue to be guaranteed by Vedanta Plc • Sterlite FCCBs will be convertible into Sesa Goa ADS (new facility will be provided)

Shareholding patterns of Sesa Goa & Sterlite:

SHAREHOLDING PATTERN AS ON DECEMBER 31 , 2011

NAME OF THE SHAREHOLDER Sesa Goa

(mn shares) % Sterlite

(mn shares) % Promoters : Equity 479 55.1% 1792 53.3% Promoters : ADS - - 165 4.9% FII 214 24.7% 390 11.6% DII 46 5.2% 308 9.2% Non-Institutions 130 15% 442 13.2% ADS - - 263 7.8% Total 869 100% 3361 100%

LARGE NON-PROMOTER SHAREHOLDERS :

Life Insurance Corporation of India - - 87 2.6% ICICI Prudential Life Insurance Company Ltd - - 73 2.2% Bhadram Janhit Shalika - - 71 2.1% Franklin Templeton Investment Funds 85 9.8% - - Templeton Emerging Markets Investment Trust PLC 21 2.4% - -

• 1 Sterlite ADS = 4 shares • Sterlite : FCCBs of $500m outstanding convertible to ADS @ $23.33 per ADS (21.4m ADS) a dilution

of 2.5% Source : NSE, BSE


Timetable: Since amalgamation requires approvals of shareholders, High Courts, FIBP, CCI etc, the transaction process

will be slow. The Management had expected the process to close during CY12. Our experience (IVRCLINFRA-IVRCLAH, PIHC-PLSL, RNRL-RPOWER, ULTRACEMCO-SAMRUDDHI, ZEE-ZEENEWS) has shown that such processes generally take about 7-10months. However, many entities (& different Geographies) are involved hence the time taken is expected by us also to be on the higher side.

The Vedanta Management had put the time schedule as follows:

EVENT EXPECTED DATE BSE and NSE approval sought March 2012 Competition Commission of India approval sought March 2012 Foreign Investment Promotion Board approval sought March 2012 BSE and NSE approval April 2012 Vedanta posting of UK circular April 2012 Competition Commission of India approval April 2012 Application to High Court in India and Supreme Court of Mauritius April 2012 Vedanta EGM May 2012 Scheme documents posted to shareholders May 2012 Sesa / Sterlite / MALCO EGM June 2012 Foreign Investment Promotion Board approval June 2012 Supreme Court of Mauritius approval September 2012 High Court of Mumbai & also Madras September 2012 Other required approvals CY 2012 Transaction completion CY 2012

On 24th April, the Competition Commission of India had approved the merger of Sterlite Industries and Sesa Goa. On 9th May, SESAGOA announced it would hold a court convened shareholders meeting on 19th June to consider the merger scheme. On 23rd May, STER announced it would hold a court convened shareholders meeting on 21st June to consider the merger scheme.

On 15th June the Institutional Investor Advisory Services (IiAS), said in a report that it had recommended to vote against the merger. This recommendation was for both the SESA GOA & STERLITE shareholders. On 25th June, the Vedanta group announced successful approval of the same. The voting pattern (valid votes) for the same was as under:

Particulars Promoter Non-Promoter Total Promoter Non-Promoter Total Voted For (mn) 479 17 496 1957 170 2127 Voted Against (mn) 131 131 185 185 Total Shareholding mn

SESA

G

OA

869 STER

LITE

3361 In September, the Supreme Court of Mauritius gave approval for the merger process.

On 3rd April 2013, the Bombay High Court at Goa gave approval to the merger. The Chennai High Court hearing has completed and final order is awaited.

On 25th July 2013, the High Court of Madras had also given its approval. However, One of the shareholders of Sesa Goa has filed an appeal against the order passed by the High Court of Bombay at Goa before the Division Bench of the same court. The hearings before the Division Bench have been completed and the order is awaited. Current Returns & Trade Dynamics

The futures of both scrips have decent liquidity and an open interest of $60m (SESAGOA) & $80m (STER)

respectively (March’12). The day before the Board meeting, the shares of Sesa Goa were trading at a premium of 15% to those of Sterlite in terms of the share exchange ratio. However, the spread opened around 7% on 27th

– 15 of 35 –

http://www.iias.in/vedanta.aspx


February (first trading day after announcement) and squeezed to 5% thereafter. The spread even squeezed to 2% in the early part of March 2012. By the end of April 2012 it expanded to 7% and to 17% by May 2012 end. June 2012 was eventful and the merger spread traded multiple times between 16%-10%. In July 2012, the spread traded around 10%, softening to 8% towards the end of the month. In August 2012, it compressed to 2.7% and widened back to 7% by the month end. After trading around 6%+ for a couple of days, the spread contracted to ~1.5% by mid-September 2012. It again expanded to ~5.5% in the last week of September. We sent an update on 25th September 2012 recommending to reenter the spread at those levels. By the 3rd week of October 2012 it squeezed to 1.5% (unwind opportunity) and expanded to 3%+ by the month end. In November it ranged between +4.2% +1%. In December 2012, it fell to -2% but ended close to 0.5%. In January 2013, it expanded to -3.5%, ahead of quarterly results and compressed to -1.7% by the month-end. In February it was ranged within -1.6% & +0.6% while in March it ranged between -2% to +1%. In April & May 2013 it ranged between -1% & +5%. In June 2013 it ranged between +2% - +5% while in July it was 1.4-6.1%.

The merger trade setup using futures for both legs involves selling 6 lots (12000 shares) of SESAGOA against 5 lots (20000 shares) of STER. Initial futures margin is around 18-19% for each leg.

Prior to the announcement, short rolls of Sesa Goa have been mostly at a profit but these have been at a lower level (45-85bps) than the broader market. On the other hand long roll of Sterlite has been healthy (loss to long roller) in the past (80-110bps). Till May 2012, the roll cost was not significantly impacted (loss of 20-40bps per month to the merger spread trade setup), since this trade had not seen a sharp buildup (especially displayed by the open interest decrease in the past). However, in May 2012, the open interest buildup was there and the impact on the merger trade setup was around 100bps (loss). In June the open interest vaulted and the roll cost went from 170bps to 300bps+ (loss) for a merger trade setup. In July, the roll cost was initially high but towards the end was only 100-150bps (loss) for the merger trade setup. In August-December 2012, the roll cost was just 20-40bps (loss) each month for the merger trade setup. In January, February & March 2013, the roll cost of the merger trade setup was close to negligible. In April & May it was around 35 - 50bps (cost), while in June’13 it widened to 60bps (cost). In July’13 it was 30-60bps (cost).

In April 2012, SESA GOA announced a dividend of Rs 2/- going ex on 8-Jun-2012 while STER announced Rs 1 going ex on 25-Jun-2012 – both around 107bps. STER gave another Rs. 1.10/- worth going ex on 29-Oct-2012. SESA GOA & STER announced dividend of Rs 0.10 & Rs 1.20, going ex on 4-Jun-2013 & 10th May 2013 respectively.

SESA ROLL SPREAD (BPS) STER SPREAD (BPS)

LHS: Futures prices; RHS: Roll bps

Source: PhillipCapital , NSE


The spread opened around 7% on 27th February and squeezed to 3% thereafter. With roll costs coming into

play, such a spread was unlikely to be significantly profitable. In our 2nd April report we had suggested entering the future-future spread around 7%. Based on the fact that we had observed low/no open interest addition, we assumed 40bps roll cost each for around 7 months implies a net spread of around 3.5% (of a gross spread 7%) and thus

– 16 of 35 –


initiating a position. Investment (margin) was limited to 34% (17%+17%) of a side of exposure. Broadly mark-to-market would be netted off by the two legs. However, the open interest rose by 30% in the 1st week of June itself implying roll costs would increase. In July, rolls cost reduced.

The futures open interest on 23rd February 2012 was 29.21mn & 10.55mn in Sterlite & Sesa Goa respectively. The open interest was down 38% in Sterlite & 38% at the end of April 2012. The open interest at the end of May 2012 was down only 11% & 4% respectively. As the merger spread is wide we expect to see increase in open interest therefore we suggest to initiate spread trades in Sesa Goa (Short Roll) and/or Sterlite (Long Roll) and unwind the same ahead of the F&O expiry. In our March Report (dated 1st March 2012), we had suggested to initiate long roll in Sterlite @0.70-0.80 (60-65bps). The spread widened to +100-120bps in the expiry week. In our interim note, on 21st June, we recommended long rolling STER@60bps & short rolling SESA GOA @ -110bps. The open interest of had increased by 55% (each) in futures over the expiry. The STER roll spread expanded to 100bps while SESAGOA spread went further into discount of -215bps.

In June 2012, the spread initially expanded to 16%+, went down to 10% in a week’s time and again went back to 16% ahead of the SESA GOA EGM on 19th June. The spread gain collapsed to 11% but expanded later to 15%. However, the futures roll cost shot up by more than 300+bps (which we had expected vide note dated 21st June). In July, the merger stayed around 10%, collapsing to 8% towards the end of the month. In August it collapsed to 2.5% initially and then expanded back to 7% by the end of the month. In September, it collapsed to 1.5% and the expanded to 5.5% (a good re-entry level) towards the end of the month. We sent an update on 25th September 2012 to reenter the spread. By the 3rd week of October 2012 it squeezed to 1.5% (unwind opportunity) and expanded to 3%+ by the month end. By mid-November it expanded to 4.2% and contracted to under 1% by the month end. In December 2012, it fell to -2% but ended close to 0.5%. By January end (25th January) it expanded to -3.5% and we recommended to setup the merger (reverse) trade. The position was unwinding around -1.6% (@Jan-end). In February & March it ranged within -2% & +1%. In April & May it ranged between -1% & +5%. In June 2013 it ranged between +2% - +5% while it initially fell to 1.4% in July, rose to 6.1% by mid-month and fell to 1.7%-2% levels post-announcement on 25th July (High Court of Madras passing the order in favour).

Once the High Court of Bombay at Goa passes the order and if favourable, only procedural aspects will be left and the closure of the deal will take generally 10-25 days. One can partly enter the trade @2%+ especially if & when High Court of Bombay at Goa approves it.

Based on initial open interest, there is likely to be opportunities for calendar spread trade (of S/R of SESA & L/R of STER futures). Options are not liquid enough for setting up strategies.

Recommendation Summary:


19-Jul-2013 Spread @6.1% initiate now Highest in a year

1-Jul-2013 Initiate spread @+3% or -3%levels (4%-5% better) Regulatory approvals remain

3-Jun-2013 Initiate spread @+3% or -3%levels (4%-5% better) Regulatory approvals remain

2-May-2013 Initiate spread @+3% or -3%levels (4%-5% better) Regulatory approvals remain

1-Apr-2013 Initiate spread @+3% or -3%levels (4%-5% better) Regulatory approvals remain

4-Mar-2013 Initiate spread @+3% or -3%levels (4%-5% better) Regulatory approvals remain

4-Feb-2013 Initiate spread @+3% or -3%levels (4%-5% better) Regulatory approvals remain

25-Jan-2013 Initiate reverse merger spread @ -3.5%- -2.8% (it was u/w around -1.4%t -1.8% at the end of the month)

Expect to converge

2-Jan-2013 Initiate spread @4.5%-5%levels or -3%levels Regulatory approvals remain

3-Dec-2013 Do not initiate below 3.5% Regulatory approvals remain

1-Nov-2012 Do not initiate below 3.5% Regulatory approvals remain

1-Oct-2012 Do not initiate below 3% Regulatory approvals remain

3-Sep-2012 Do not initiate below 6% Regulatory approvals remain

1-Aug-2012 Do not initiate below 5% Regulatory approvals remain

2-Jul-2012 Initiate merger spread 14%+; Long roll STER & short roll SESA GOA

14%+ levels are very good levels to initiate

4-Jun-2012 Initiate merger spread 15%+; Long roll STER & short roll 15%+ levels are very good levels to initiate; Since OI is

– 17 of 35 –


SESA GOA rising, spreads likely to be impacted

2-May-2012 Initiate merger spread ~7%+ (both futures) as open interest has not increased, roll cost limited; keep watch for spread trade opportunity too; options not too liquid

Using futures reduces cash outlay into strategy.

2-Apr-2012 Initiate merger spread ~7% (both futures); keep watch for spread trade opportunity too; options not too liquid

Using futures reduces cash outlay into strategy.

1-Mar-2012 Long roll Sterlite futures @+60-+65bps Based on open interest movement

Report Initiating coverage on the spread : 27-Feb-2012


BULK DEALS IN SESAGOA & STERLITE


QTY (‘000 SHARES)

VALUE (MN) PRICE

None since 31st December 2011

Source : NSE, BSE

Corporate Announcements etc: SESAGOA announced Q4 & Annual results on 24th April 2012, those of STER followed on 25th.

– 18 of 35 –

http://www.bseindia.com/stockinfo/AnnPdfOpen.aspx?Pname=Sesa_Goa_Ltd_240412.pdf


TECHM-SATYAM Merger Bloom Code : TECHM IS Equity / SCS IS Equity Trade Idea & Background On 21st March 2012, the Board of Directors of Tech Mahindra (TECHM) & Mahindra Satyam (SATYAM) at their respective meetings, proposed to merge the two companies, subject to approvals from requisite statutory and regulatory authorities, the shareholders of the Companies, the High Court of judicature, The swap ratio decided was to allot 2 shares of Tech Mahindra for 17 share of Satyam held. The new company would be bigger, have a larger geographical diversification, mix of verticals.

Proforma shareholding in new entity: Mahindra Group 26.3%, British Telecom12.8%, 10.4% treasury stock, 34.4% shareholders of Satyam, 16.1% shareholders of TechM. 204m shares of Satyam will be transferred to a Trust of which TechM will be a beneficiary. TechM will issue 103.4 shares to a total shareholding to 230.8m shares.

Satyam informed on 2nd April 2012, that further to the Company press release dated August 09, 2011, regarding the plans for winding down of its American Depository Shares (ADS). Post cancellation of the process, the Securities and Exchange Commission, USA, has revoked the registration of Company's ADS pursuant to section 12(j) of the Exchange Act vide its order dated March 29, 2012

Satyam informed on 7th April 2012, that a claim form addressed to Company’s branch office at UK, as filed before the High Court of Justice, Queen’s Bench Division, Commercial Court, UK, for an amount to be assessed, has been received from Aberdeen Global & Others. It's alleged in the claim, an estimated loss in excess of USD 150 mn, opportunity loss and interest @ 8%, due to the investment made in the Company’s stock and / or ADSs. Satyam informed on July 28, 2012 that "Mahindra Satyam has entered into an Agreement of Settlement (the "Settlement") with Aberdeen Claims Administration, Inc., ("Aberdeen") the trustee for two trusts who are the purported assignees of legal claims against the company belonging to twenty investors who allegedly purchased the company's common stock and American Depositary Shares prior to January 7, 2009, and who sold such securities shortly thereafter. Aberdeen had alleged that the losses suffered by the twenty investors is over USD 68 Million. The obligations incurred pursuant to the Settlement are in full and final disposition of the action initiated by Aberdeen in the United States District Court for the Eastern District of Pennsylvania, subsequently transferred and currently pending in the United States District Court for the Southern District of New York (the "Court"). Under the Settlement, the Company is required to inter-alia deposit in an Escrow, an amount of USD 12 Million (equivalent to Rs. 667 million). The Settlement itself is subject to the entry of an appropriate Consent Order by the Court that has not been delivered till date".

By 3rd May 2012, the company had received the approvals from the Competition Commission of India. On 8th June, TECHM informed regarding the favourable outcome of the Court-convened meeting of the equity

shareholders of the Company. On 11th June, Satyam Computers informed regarding the favourable outcome of the Court-convened meeting of the equity shareholders of the Company.

On 30th August, British Telecommunication Plc (promoter group) sold 17.9mn shares (@Rs777.73) of Tech Mahindra, bringing down its stake from 23.2% to 9.1%. Most of the shares were bought by Mutual Funds. On 12th December 2012, BT Plc sold 9.1% stake (11.5mn shares) in Tech Mahindra @ 881.

On 3rd September, it was announced that Tech Mahindra plans to buy Hutchison Whampoa's call centre business in India, according to two sources with direct knowledge, in a deal that one of the sources said was worth between $100 million and $120 million

By 1st October 2012, the Bombay High Court had approved the merger. On 18th October, the Enforcement Directorate attached Rs 8.22 bn Mahindra Satyam fixed deposits. On 21st

November 2012, it was reported in media that the Adjudicating authority under the Prevention of Money Laundering Act (PMLA) has issued notices to Mahindra Satyam to appear before it in connection with an alleged money-laundering case involving its previous management. On 11th December 2012, the Andhra Pradesh High Court stayed a provisional order issued by the enforcement directorate attaching Rs 8.22bn deposit belonging to Mahindra Satyam in a money-laundering case involving former Satyam chairman B Ramalinga Raju and others. In a temporary relief, on 19th February 2013, the High Court stayed the EDs order, permitting Satyam to use the FDs.

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On 27th November 2012, it was reported in the media that TechM shareholders had appealed against the merger due to unfavourable merger ratio.

On 6th December 2012, the Andhra Pradesh High Court said it would appoint an independent auditor to look into the books of Satyam. On 7th December 2012, it appointed Brahmaiah and Co as auditors. The independent auditor was given the mandate to submit a report by January 4, 2013, when the issue would be taken up for hearing.

After the hearing on 4th January 2013 in the Andhra Pradesh High Court, it was revealed that Brahmaiah and Co., the independent auditor designated by the Andhra Pradesh high court to scrutinize the scheme of amalgamation of information technology (IT) services providers Mahindra Satyam and parent Tech Mahindra Ltd, has been given more time to prepare its report. The Hyderabad-based auditing firm had not yet commenced the process and is working on the terms of reference. The Judge asked the independent auditor to work with the official liquidator and finish the process by 30 January, the next date of hearing.

On 28th February 2013, Brahmayya & Co. and submitted their report to the official liquidator. The same was be taken up in the hearing on 5th March onwards.

On 13th December 2012, Mahindra Satyam announced that it has entered into a confidential Settlement Agreement (the "Settlement") settling claims brought in the Commercial Court in London by Aberdeen Global and twenty-two other funds (collectively, the "Claimants") managed by Aberdeen Asset Management PLC ("Aberdeen") and/or its subsidiaries (the "Claims"), The Claims included certain allegations of fraudulent misrepresentations said to have been made by the former management of the Company in London and relied upon by the Claimants' investment manager and/ or communicated in meetings alleged to have taken place in London. The Claimants have claimed that they have suffered losses of an estimated sum of USD $298,339,978 and additional consequential losses. By virtue of the Settlement, the Claims have been fully and finally disposed of on the basis of, inter alia, a payment by Company of USD $68 million. In July 2012, the Company settled claims by other Aberdeen-affiliated former investors brought in the United States. A class action brought in the United States on behalf of other former investors in the Company was also settled in February 2011.

It was reported in the press on 7th January 2013, entities owned by IL&FS Engineering and Construction (formerly Maytas Infra) have now moved the Andhra Pradesh High Court seeking winding up of Satyam. The IL&FS entity submitted to the court that it had lent Rs 36.5 crore to Satyam of which only Rs 17.92 crore was repaid by the software outsourcer till September 2008 and an amount of some Rs 23 crore including interest was pending. On 11th June 2013, the High Court of Andhra Pradesh approved the Scheme of Amalgamation. Timetable:

The Group Management expected 6-9 months for the process. However, there have been legal hiccups all

along the way. The Andhra Pradesh High Court proceedings centered around Satyam’s past seemed to be causing delay.

On 25th March 2013, the companys’ announced that their Board of Directors extended the validity of the Scheme by a further period of six months i.e. upto September 30, 2013 (as approval of Andhra pradesh High Court is still pending)

On 11th June 2013, the High Court of Andhra Pradesh approved the Scheme of Amalgamation. On 25th June 2013, the last trading day for Satyam was announced to be 3rd July 2013. Shares of TechM were credited to Satyam shareholders on the 12th July 2013. Current Returns & Trade Dynamics

In March 2012, the spread squeezed to 4% initially. We had suggested abstaining from initiating the merger spread. Thereafter, it expanded to around 7%. In April 2012, it fell again to 4% and later expanded back to 8-10%. In May 2012, it traded in a range of 2%-8%. In June 2012, the merger spread squeezed to 3% and went back to 6%+ by the month end. In July 2012, the merger spread traded in a range of 1-5%. In August 2012, the merger spread traded in a range of 1%-3.5%. It traded in a range of 2.5% to 1% during most of September, rising towards the end of the month. In October, the merger spread began@ 5.5% and then contracted to 1.5% (good for unwind) by 11th October and we clarified that the High Court of Andhra Pradesh hearing was postponed to the end of October – increasing the timeline. At October-end it [email protected]%, which contracted to 2% in the 1st week of November, then expanding to 3.5% by mid-November and again contracted to 1.6% by November end. In December 2012, on the news of delay, the

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spread expanded to 8%+ but slowly slipped lower to 3% by month end. In January 2013, the spread collapsed to -5.5% but compressed to -2% by the month end. In February 2013, the spread went to -2.1% and then expanded to 4.6%. In March it compressed from 4.9% to -4% (month end @-2.9%). In April, it increased to 3.4% (1.7% month end). In May it fell to -0.5% and then expanded back to +3% while in June it contracted from 4.8% to 1.8%.

Merger trade setup positions were to be built with 2125 shares of SATYAM for 1 February future (250 shares)

of TechM. TechM & Satyam announced dividend of Rs 5 (55bps) & Rs 0.6 (53bps) going ex on 1st Aug 2013 & 29th July

2013 respectively, both after the July expiry (25th July). However, both AGMs were called off on account of the merger process.

Prior to the merger announcement the spread has been in profit. However, March’12 onwards rolls softened in the expiry week as open interest had increased since announcement. In September 2012 – January 2013 saw firm spreads. February roll was relatively soft while in March, April & May roll spreads again firmed up. However, June was soft. Status & Our Comments

The spread had been giving good trading gains in the last few months. On 25th June 2013, the last trading day for Satyam was announced to be 3rd July 2013. Shares of TechM were credited to Satyam shareholders on the 12th July 2013. Trade closed. Recommendation Summary:


1-Jul-2013 Initiate merger spread around 1.2% Approvals in place

3-June-2013 Initiate merger spread above +/-5% for trading; unwind around 1-2%. Watch for roll spread trade too

Favourable spread

2-May-2013 Initiate merger spread above +/-5% for trading; unwind around 1-2%. Watch for roll spread trade too

Favourable spread

1-Apr-2013 Initiate merger spread above +/-5% for trading; unwind around 1-2%. Watch for roll spread trade too

Favourable spread

4-Mar-2013 Initiate merger spread above 3.5%-5% for trading; unwind around 1-2%. Watch for roll spread trade too

Favourable spread

4-Feb-2013 Initiate merger spread above 3.5%-5% for trading; unwind around 1-2%. Watch for roll spread trade too

Favourable spread

2-Jan-2013 Initiate merger spread above 3.5%-5% for trading; unwind around 1-2%. Watch for roll spread trade too

Favourable spread

3-Dec-2012 Initiate merger spread above 3.5%-5% for trading; unwind around 1+%. Watch for roll spread trade too

Favourable spread

1-Nov-2012 Initiate merger spread above 3.5% for trading; unwind around 1+%. Watch for roll spread trade too

Favourable spread

1-Oct-2012 Initiate merger spread above 4.5% for trading; unwind around 1%. Watch for roll spread trade too

Favourable spread

3-Sep-2012 Initiate merger spread above 3% for trading; watch for roll spread trade too

Favourable spread

1-Aug-2012 Initiate merger spread around 3.5%-6% for trading; watch for roll spread trade too

Favourable spread

2-Jul-2012 Initiate merger spread around 8-10%; watch for roll spread trade too

Favourable spread

4-Jun-2012 Initiate merger spread around 8-10%; watch for roll spread trade too

Favourable spread

2-May-2012 Initiate merger spread around 8-10%; watch for roll Favourable spread

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spread trade too

2-Apr-2012 Initiate merger spread around 10%; watch for roll spread trade too

Not to initiate at low spread

Report Initiating coverage on the spread : 21-Mar-2012


BULK DEALS IN SATYAM


QTY (‘000 SHARES)

VALUE (MN) PRICE

19-Mar-12 Citibank NYADR-Satyam Comp Ltd SELL 14091 18.7 67.52

19-Mar-12 Reliance Capital Trustee Company Ltd A/C Reliance Growth Fund BUY 12960 17.2 67.50

Source : NSE, BSE


SATYAM released results on January 31, 2013 while TECHM Q3 on Feb 06, 2013 On 5th Nov 2012, TECHM announced Quartely results On 30th October, 2012, SATYAMCOMP announced quarterly results. On 28th September, 2012, SATYAMCOMP announced that the auditors have conducted the limited review for

the un-audited financial results for the quarter ended June 30,2012. On 25th May 2012, TECHM announced a dividend of Rs 4 (ex-date 2-Aug). TECHM declares dividend

annually while Satyam has not declared any dividend since October 2008. On May 23 2012, TECHM declared results while Satyam declared them on the 17th.

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http://www.bseindia.com/xml-data/corpfiling/AttachHis/Tech_Mahindra_Ltd1_051112.pdf

http://www.nseindia.com/content/corporate/SATYAMCOMP_LR_30jun2012.zip

http://www.nseindia.com/content/corporate/TECHM_31MAR2012_B_Q4A.zip

http://www.nseindia.com/content/corporate/SATYAMCOMP_31MAR2012_C_Q4A.zip


JSWSTEEL-JSWISPAT Merger Bloom Code : JSTL IS Equity & JSWI IS Equity Trade Idea & Background Late on 20th December 2010, the Board of Directors of ISPATIND (now JSWISPAT) approved a Subscription cum Shareholders Agreement ("SSHA'") amongst the Company, JSW Steel Limited Company ("JSW") and the Promoters of the Company. Pursuant to the SSHA, JSW became the Promoter of the Company. JSW Steel infused Rs 21.57bn into Ispat Industries by subscribing to 1.09bn shares @ Rs19.85/-. Takeover regulations required JSW Steel to make an open offer for atleast 20% of the shares outstanding. In accordance, JSW Steel made a Public announcement to that effect on 22nd December. The Open offer price was fixed @ Rs20.54, revised later to Rs 22.25 and completed in April 2011.

In September 2011, pursuant to the approval sanctioned by the Corporate Debt Restructuring - Empowered Group and requisite consent of the shareholders of 12% Cumulative Redeemable Preference Shares (CRPS) of Rs. 100/- each (adjusted face value Rs.76/- per share) obtained in terms of Section 106 of the Companies Act, 1956, the outstanding 12% CRPS of Rs. 100/- each (adjusted face value Rs.76/- per share) in the Company were fully redeemed. In May 2012, the company announced that the Securities Issue Committee of Board of Directors of the Company, allotted an aggregate of 130mn Equity Shares of Rs.10/- each in the Company, on preferential basis, at a premium of Rs.4.74 per share, to the CDR Lenders of the Company

On 1st September 2012, the Board of Directors of JSW STEEL & JSW ISPAT approved an all share deal for the merger of JSW ISPAT into JSWSTEEL. JSWISPAT would be wound up in this arrangement. The approved scheme is summarized as under:

• 72 shares of JSWISPAT get 1 share of JSWSTEEL • JSWSTEEL shareholding will be cancelled • JSWSTEEL will thus issue 18.6mn new equity shares. • JSWSTEEL will issue 485.4mn new 0.01% non-convertible cummulative redeemable preference shares - for

every 1 cumulative redeemable preference share of JSW Ispat, the holder shall be entitled to receive 1 cumulative redeemable preference share.

• Effective date 1st July 2012 Benefits:

• Becomes amongst the top steel producers with increased capacity to 14.4MTPA (11MTPA + 3.3MTPA) • Economies of scale and reduction of marketing, general & administration cost. • De-risk single location upstream profile • Leverage of market & distribution platform • Accelerated utilisation of brought forward losses of JSW Ispat. • Reduced cost of financing

The shareholding structure is expected to change as under:

SHAREHOLDING AS ON JUNE 30, 2012

PARTICULARS JSWSTEEL JSWISPAT MERGED Promoter 38% 47% 35% Previous promoters - 20% - FII 20% 2% 19% DII 5% 11% 5% Non-Institution 35% 20% 40% GDR 1% - 1% Total outstanding shares (mn shares) 223.1 2516.8 241.7 Source: NSE, BSE

Earstwhile promoter group (Mittals) companies sold 6.4% stake as disclosed by exchange filings (1st week of January 2013). Jindal group (current promoters) added 4.9% to 51.65%.

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Timetable: Approvals will be required from Creditors, Lenders, preference shareholders, equity shareholders, BSE, NSE,

High Courts, Competition Commission of India etc. The Management expects to complete the process of merger by the end of the financial year, with the expected schedule as below.

Event Expected by Approval by Boards of both companies and announcement September 01, 2012 BSE and NSE approval sought September 2012 BSE and NSE approval September 2012 Competition Commission approval sought September 2012 Application to Jurisdictional High Court October 2012 Competition Commission approval December 2012 Scheme documents posted to shareholders of both companies December 2012 JSW Steel - Court Convened Shareholders and Creditors Meetings December 2012 JSW Ispat - Court Convened Shareholders and Creditors Meetings December 2012 High Court approval March 2013 Other required approvals March 2013 Transaction completion March 2013 Source : JSWSTEEL & JSWISPAT management

On 25th October 2012, the Competition Commission of India gave approval to the merger. By an order made on December 20, 2012, the Honourable High Court of Judicature at Bombay has directed

that a meeting of the equity shareholders and preference shareholders of the Company be held on January 30, 2013 at 10.30 a.m and at 12.30 p.m respectively for the purpose of considering and if thought fit, approving with or without modification (s), the proposed arrangement embodied in the Composite Scheme of Amalgamation and Arrangement amongst JSW ISPAT Steel Limited and JSW Building Systems Limited and JSW Steel Coated Products Limited and JSW Steel Limited and their respective Shareholders and Creditors. The resolution was passed accordingly by both companies. On 8th May 2013, the company announced that it has got sanction of the High Court of Bombay. On 3rd June 2013, the company announced that the company had fixed 12th June 2013 as the record date. Current Returns & Trade Dynamics

The proposed deal involves the shareholders of JSW ISPAT receiving shares of JSWSTEEL. The merger

spread trade setup would involve buying 36,000 shares of JSWISPAT for every 1 lot (500 shares of JSWSTEEL). On Friday (31st August 2012), the spread was trading @+1%. We had suggested initiating an inverse merger spread (buy JSW Steel & Sell JSW Ispat) at those levels using September futures. The spread expired at 6.3%, a neat profit of ~5.3% in a month. JSW Ispat is no longer available in the futures segment (October onwards). At the close of September, the spread traded above 5%, 3% at the end of October and also November. By December-end in expanded to 10.5%+ for the 1st time and contracted to 5.3% in January 2013. By the end of the month it was 6.1%. In February 2013, it contracted to 4.3% and expanded back to 6% levels and ended @ 5.3%. In March, it expanded to its highest level after the shareholders’ approval to 8.2% and fell to 6.7% by the month end. In April it ranged between 5.2% to 7.4% (6.7% towards end). In May 2013 it reduced to 2.2% towards the end of the month. Ahead of delisting, the spread ranged between 0.8%-1.4%.

JSWSTEEL declared dividend of Rs 10/- going ex on 15-Jul-2013.

Status & Our Comments The return of the shares completed this trade. Dividend of Rs 10/- going ex on 15-Jul bore extra fruit (150bps). The converted JSWISPAT’s shares (JSWSTEEL) listed on 2nd July 2013. Recommendation Summary:


1-Jul-2013 na

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3-Jun-2013 Initiate @1.7% merger spread Filed details with ROC, final process nearing

3-Jun-2013 Initiate~2% merger spread Approvals in place only procedure remains

2-May-2013 Initiate @ 5%-8%+ merger spread (higher weightage at higher levels)

Progressing, High Court approval applied for.

1-Apr-2013 Initiate @ 5%-8%+ merger spread (higher weightage at higher levels)

Progressing, High Court approval applied for.

11-Mar-2013 Initiate here [email protected]% (fut@8%+) Highest level since approval by General Body

4-Mar-2013 Initiate @ 5-6% merger spread Progressing, High Court approval applied for.

4-Feb-2013 Initiate @ 5-6% merger spread Progressing, High Court approval applied for.

2-Jan-2013 Initiate @ 7-11% merger spread Progressing

3-Dec-2012 Merger spread cannot be initiated @3%. Process has begun, looks like 6+ months to go

1-Nov-2012 Merger spread cannot be initiated @3%. Process has begun, looks like 6+ months to go

1-Oct-2012 Merger spread cannot be initiated @5%. Process has begun, looks like 7+ months to go

3-Sep-2012 Merger spread cannot be initiated @1%. Inverse merger spread with September futures (gave profit of 5%+ in a month).

Process has just begun, time remains

Report initiating coverage on the JSWSTEEL merger trade : 3rd September 2012

Miscellaneous Corporate Announcements etc: On 28th January 2012, JSWSTEEL announced Quarterly results On 28th October, 2012, JSWSTEEL announced Quarterly results On 26th October, 2012, JSWISPAT announced Quarterly results

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Tata Steel – Tata Metaliks Merger Bloom Code : TATA IS Equity / TML IS Equity Trade Idea & Background On 10th April 2013, the Board of Directors of Tata Steel Limited (TATA), Tata Metaliks Limited (TML) & Tata Metaliks Kubota Pipes Limited (subsidiary of TML) at their respective meetings, proposed to merge the three companies, subject to approvals from requisite statutory and regulatory authorities, the shareholders of the Companies, the High Courts. Public shareholders of TML will be issued 4 shares of TATA for every 29 shares of TML.

TML & TMKPL would be dissolved on the merger taking effect. TSL holds 50.09% (directly + indirectly) and these shares shall be extinguished. The shareholding structure is expected to change as under:

SHAREHOLDING AS ON MARCH 31, 2013

PARTICULARS TATA STEEL

TTATA METALIK

MERGED

Promoter 31.4% 50.1% 31.3% FII 13.9% 0.1% 13.8% DII 27.2% 3.4% 27.2% Non-Institution 25.3% 46.4% 25.4% GDR 2.2% - 2.2% Total outstanding shares (mn shares) 971.2 1.74 972.9 Source: PhillipCapital India, NSE, BSE

Timetable:

Since amalgamation requires approvals of shareholders, High Courts (Bomaby & Calcutta) etc. However, our experience with earlier amalgamations in the merger trades suggests a minimum 5-7 months (if no major hindrance). The management hasn’t given any timeline as yet.

The NSE & BSE gave their no-objection in mid-June. Current Returns & Trade Dynamics

In April 2013, the spread began @-7% (TML trading expensive) and within a week reached parity. It moved slowly to +3% by month end. In May it expanded to +7% only to end @+4.5% In June it expanded from 4.5% to 8.5% (not considering dividend). In July, after touching 8.8%, it contracted to just 1.8% and ended the [email protected]%.

Merger trade setup positions are to be built with 7250 shares of TML for 1 future (1000 shares) of TATA STEEL.

TML hasn’t declared dividend since 2008. TATA Steel declares dividend every year and goes ex in July. On 23rd May 2013, the company declared dividend of Rs 8 to go ex on 17th July 2013.

Historically, TATASTEEL rolls (bps) have been healthy.

TATASTEEL ROLL SPREAD (BPS)

LHS: Futures prices; RHS: Roll bps Source: PhillipCapital , NSE

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Status & Our Comments Once favourable spread is available, we suggest buying shares of TML and hedging with TATASTEEL

futures. Those holding shares of TML can convert to TATASTEEL or vice versa when favourable. One can initiate the spread around +7 - +10% range (higher allocation at higher levels) and unwind trade around +2% - +4%.

Also, we keep watch on the open interest for initiating a short roll. Recommendation Summary:


1-Jul-2013 Initiate @+7% to 10% range, keep watch for roll spread Initial part of merger process

3-Jun-2013 Initiate @+7% to 10% range, keep watch for roll spread Initial part of merger process

2-May-2013 Wait for favourable spread +3% is too low at this stage

11-Apr-2013 Switch from TML (cash) to Tata Steel (cash/futures); went to parity in a weeks time

TML trading ~7% premium

Report Initiating coverage on the spread : 11th April 2013


BULK DEALS IN TATA METALIK


QTY (‘000 SHARES)

VALUE (MN) PRICE

No bulk deal since April 2013

Source : NSE, BSE


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Zee Entertainment RPS Bonus issue Bloom Code : Z IS Equity Trade Idea & Background

On 22nd May 2013, the Board of Directors of ZEE Entertainment Enterprises Ltd approved a Special Reward to shareholders on completion of 20 years of broadcasting business of the Company, the Board has considered and approved distribution of about Rs. 2000 Crores, by way of Bonus issue of 6% Redeemable Preference Shares ('RPS'). Based on this decision, the Company will issue 21 (Twenty-one) RPS of Re. 1 each for every Equity Share of Re. 1 each held in the Company, through a Court approved Scheme of Arrangement and such issuance shall be subject to other statutory and regulatory approvals/exemptions. Also, it has recommended payment of Dividend of Rs. 2.00/- per equity share of Re. 1 each (equivalent to 200% on the paid up capital), to the Equity Shareholders for the FY 2012-13.

SHAREHOLDING AS ON MARCH 31, 2013

PARTICULARS Zee Entertainment Promoter 43.4% FII 41.7% DII 8.7% Non-Institution 6.2% Total outstanding shares (mn shares) 954 Source: PhillipCapital India, NSE, BSE

The company is thus issuing 20bn 6% RPS of Re. 1 each. The face value of the issued RPS is ~8.5% of the Equity shares. The RPS would be redeemed in 5 instalments (4th to 8th year). The RPS is expected to trade below its face value as 6% coupon is lower than even the risk free interest rate in India. The idea would be to set up an arbitrage (buy cash, sell futures) and get the bonus 6% RPS as dividend. Timetable:

The management hasn’t announced any schedule yet, however, a similar issue by Dr Reddy in 2010 took almost a year. Recalling the DRREDDY 9.25% Unsecured Redeemable NCD issue:

Date Particulars 7th Apr 11 Liquidity Facitity

24th Mar 11 allotment of NCD

9th Mar 11 RD announced as 18Mar11

12th Aug 10 Receipt of Order from HC

28th May 10 Shareholder body passes scheme

31st Mar 10 Board approves issue of Debentures to Shareholders

Current Returns & Trade Dynamics

ZEE Entertainment Enterprises Ltd has a credit rating from CARE (assigned to the bank facilities) of CARE AA/CARE A1+, which was reaffirmed in November 2012.

NPV CALCULATION Discounting rate 9% 10% 11% 12% 13% NPV 0.875 0.838 0.803 0.770 0.739 Per Equity Share 18.4 17.6 16.9 16.2 15.5 Source: PhillipCapital India, NSE, BSE

ZEEL declared dividend of Rs 2 in May 2013, ex 13-July.

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Historically, ZEEL rolls (bps) have been fairly healthy. ZEEL ROLL SPREAD (BPS)

LHS: Futures prices; RHS: Roll bps Source: PhillipCapital , NSE


Once favourable spread and schedule is available, we suggest buying shares of ZEE and hedging with futures. Roll spreads can be looked at at a later stage. Recommendation Summary:

DATE RECOMMENDATION REASON 1-Jul-2013 Too preliminary to initiate Time taken for approvals to fall into place can be as

much as a year

3-Jun-2013 Too preliminary to initiate Time taken for approvals to fall into place can be as much as a year

12-May-2013 Too preliminary to initiate Time taken for approvals to fall into place can be as much as a year

Report Initiating coverage on the spread : 12th May 2013


BULK DEALS IN TATA METALIK


QTY (‘000 SHARES)

VALUE (MN) PRICE

No bulk deal since April 2013

Source : NSE, BSE


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Offer For Sale (OFS) Trade Idea & Background According to the Sebi guidelines, private sector companies have to increase the public shareholding to 25 per cent and public sector companies have to do the same to 10 per cent. The deadline for private sector companies is June 2013 and for public sector companies, it is August 2013. Dilution of promoter shareholding can be in the form of issue of shares through prospectus, sale of promoter shareholding in secondary market, OFS or IPP.

Early in 2012, Offer For Sale(OFS) mechanism has been introduced by SEBI to facilitate promoters to dilute/offload their holding in listed companies. A separate window is being provided by the Exchange for the same. Eligibility:

a. Promoter(s)/ promoter group entities of companies that are eligible for trading and are required to increase public shareholding to meet the minimum public shareholding requirements

b. Promoter(s)/ promoter group entities of top 100 companies based on average market capitalization of the last completed quarter are eligible to use the mechanism. Many of the stocks are present in derivatives and offer setting up of strategies that can yield calculated returns, namely: a. Arbitrage positions prior OFS/IPP and unwind when it goes into discount at the time of OFS/IPP; b. Reverse Arbitrage when futures go into discount at the time of OFS/IPP c. Selling Options : selling calls &/ put &/ straddle/strangles Recent OFS in F&O names include: RECENT ISSUES USING THE “OFFER FOR SALE” WINDOW SCRIP NAME FACE VALUE OFS PLATFORM START DATE END DATE SIZE (RSBN) Adani Enterprises Ltd 1 BSE 21/Dec/12 21/Dec/12 6.5 Reliance Power Ltd 10 BSE 19/Dec/12 19/Dec/12 14.1 NMDC Limited 1 NSE,BSE 12/Dec/12 12/Dec/12 58.3 Adani Power Ltd 10 BSE 8/Oct/12 8/Oct/12 1.9 Jaiprakash Power Ventures Limited 10 NSE,BSE 29/Jun/12 29/Jun/12 1.0 Wipro Limited 2 NSE,BSE 14/Mar/12 14/Mar/12 14.6 Oil and Natural Gas Corporation Limited 5 NSE,BSE 1/Mar/12 1/Mar/12 124.1 NTPC Limited 10 NSE,BSE 7-Feb-13 7-Feb-13 113.6 Adani Enterprises Ltd 1 BSE 6/Feb/13 6/Feb/13 1.7 Adani Enterprises Ltd 1 BSE 4/Mar/13 4/Mar/13 1.9 Steel Authority Of India Ltd. 10 NSE,BSE 22/Mar/13 22/Mar/13 15.1 Oracle Financial Services Software Ltd 5 NSE,BSE 22/05/13 22/05/13 10.1 JSW Energy Ltd 10 NSE,BSE 22/05/13 22/05/13 1.7 Sun Tv Network Ltd 5 NSE,BSE 29/May/13 29/May/13 3.2 Tata Communications Ltd 10 NSE,BSE 3/Jun/13 3/Jun/13 0.5 Source: NSE, BSE, PhillipCapital India Status & Our Comments Based on previous filings (a quarter old) our analysis indicates the following (potential) candidates were required to dilute promoter holding. Action taken by them, if any, is highlighted (may use the OFS/IPP route):

ADANIPOWER : OFS of 1.5% stake on 8th October 2012 OFSS : May 2013 ADANIENT : OFS of 2.1% stake on 21st December 2012, Feb & March’13 WIPRO : created a “Irrevocable Independent Trust” DLF : IPP SUNTV : May 2013 JSWENERGY : May 2013 TATACOMM : June 2013 NTPC : Feb’13

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CORPORATE BUY-BACK PROGRAMMES NOT ACTIVELY COVERED

OPEN MARKET BUYBACKS

P U B L I C A N N O U N C E M E N T

SCRIP DATE CMP PA

START DT

CLOSE DT

BB PRICE

MIN%

MAX%

SIZE (Mn)

NPH%

PROMO INCL CURRENT STATUS

RELIANCE 24-Jan-2012

Rs 771.55

1/Feb 2012

19/Jan 2013

Rs 870 0.9% 3.7% $2070 50% No Closed wef 19 Jan 2013

ZEEL 13-Apr-2012

Rs 125.45

23-Apr 2012

3-Apr 2013

Rs 140 0.5% 2.1% $50 56% No Closed wef April 2013

CROMPGREAV

28-Jun-13

Rs 87.3

16-Jul-2013

15-Jan-2014

Rs 125 1.7% 3.3% $40 58% No Opened in mid-July. 540k shares

bought till month end

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CORPORATE MERGERS & ACQUISITIONS ETC NOT ACTIVELY COVERED RCOM demerger

Announced on : 7th July 2013 Reliance Communications (RCOM) announced that its Board of Directors had in-principle decided on a demerger of the real estate held by RCOM into a separate unit, Reliance Properties Ltd., to unlock substantial value for the benefit of its approx. 2 million institutional and retail shareholders.

The proposed separation of real estate into a separate unit is part of RCOM’s strategic plan to divest non-core assets, and focus on its core wireless and enterprise business. Reliance Properties Ltd. will be a separate listed Company. All shareholders of RCOM will receive fully tradeable pro-rata shareholding in Reliance Properties Ltd., based on their existing shareholding in RCOM. The preliminary and indicative monetisable value of RCOM’s real estate on development is estimated by independent valuers at over Rs. 12,000 crore (US$ 2 billion), which is equal to Rs. 60 (US$ 1) per RCOM share. TATACOMM ADS delisting

Announced on : 15th May 2013

Tata Comm is currently listed on the NSE, BSE & NYSE (ADS). On 15th May 2013, it announced its intention to delist its ADS from the NYSE and terminate its ADR program. Low trading volume & SEBI mandated minimum public shareholding and costs are cited as reasons for the same.

ADS details: 1 ADS = 2 shares ; Issued shares in ADS 14.1 = 7.1 ADS = 4.97% of the total capital of the company Important Dates:

28 May (on or before) : File Form 25 with the SEC After 10 days : Delisting will become effective 14 Aug (on or before; 30days after termination of the ADS program) 13 Aug (atleast until): choice to surrender (convert to Shares) or sell the same (underlying) and pay proceeds

On 7th June, the company confirmed delisting from the ADR program. WIPRO

Announced on : 1-Nov-2012 The Board of Directors of Wipro Limited in their meeting held today, approved the demerger of the Wipro

Consumer Care & Lighting (including Furniture business), Wipro Infrastructure Engineering (Hydraulics & Water businesses), and Medical Diagnostic Product & Services business (through its strategic joint venture), into a separate company to be named Wipro Enterprises Limited. Wipro Limited will remain a publicly listed company that will focus exclusively on information technology. Wipro Enterprises Limited will be an unlisted company.

The shareholders at the court convened meeting held on December 28 have approved the scheme of arrangement between Wipro Limited (demerged company), Azim Premji Custodial Services Private Limited and Wipro Trademarks Holding Limited.

On 21st March 2013, Wipro Ltd announced that Hon'ble High Court of Karnataka has approved the Scheme of Arrangement for demerger of 'Diversified Business' of Wipro Limited as provided in the Scheme.

On 1st April it was announced that 11-April was fixed as the record date and that it would take around 6-weeks to complete the process.

IDBI Announced on : 31-Oct-2012

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Idbi Bank Limited has informed the Exchange that the Board of Directors of IDBI Bank Ltd., at its meeting held

on October 30, 2012, has given in-principle approval to the proposal for merger of Stock Holding Corporation of India Limited with IDBI Bank Limited subject to statutory / regulatory and shareholders' approvals as may be required in this regard.

SBIN Expected to be announced in the future State Bank of Saurashtra was merged with SBI in 2008 and State Bank of Indore in 2010. The State Bank of India has five associate banks — State Bank of Patiala, State Bank of Hyderabad, State Bank of Mysore, State Bank Travancore and State Bank of Bikaner & Jaipur. SBM, SBT & SBBJ are listed. Over time these are expected to be merged into SBI. The Government holds 94.5% in SBM, 77% in SBT & 77.5% in SBBJ. Bonus & Right Announcements - Expect PSBs are expected to issue right shares in FY14 - LT has declared (on 23rd May 23, 2013) bonus of 1:2 (1 for 2 shares). Record date is yet to be announced. - KTKBANK announced a rights issue on 14th September 2012. Details & record date is yet to be announced. - UNIONBANK announced a rights issue on 27th December 2012. Details & record date is yet to be announced. Miscellaneous FPO of COAL INDIA has been cleared by the Cabinet (news 30 April 2013). We keep lookout for the announcements relating to the PSUs, PSBs FPO. Jaiprakash Associates which has been deliberating sale of its Gujarat cement business for more than five month to pare its debts may soon announce a positive outcome (news 25-Mar-13)

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EVENTS PREVIOUSLY COVERED BY PHILLIPCAPITAL Open Offers & Buybacks OPEN OFFERS & BUYBACKS

SCRIP PA Date Type Offer% Offer Price

Size (mn)

Sch Open

Act Open

Act Close Comment

ABB 17-May-10 Open Offer 23% Rs. 900 $970 8-Jul 8-Jul 27-Jul On track; Voluntary

CAIRN 17-Aug-10 Open Offer 20% Rs. 355 $2,932 11-Oct 11-Apr 30-Apr Delayed due to Govt tangle

PIRHEALTH 07-Dec-10 Buy back 20% Rs. 600 $557 17-Jan 3-Mar 24-Mar Approval delayed

ISPATIND 21-Dec-10 Open Offer 20% Rs. 22.25 $320 12-Feb 17-Mar 5-Apr Restructuring

PATNI 11-Jan-11 Open Offer 20% Rs. 503.5 $303 4-Mar 8-Apr 27-Apr Approval delayed

SIEMENS 31-Jan-11 Open Offer 19.8% Rs. 930 $1,385 25-Mar 25-Mar 13-Apr On track; Voluntary

BRFL 6-Apr-11 Open Offer 20% Rs. 300 /

302.06 $162 30-May 4-Nov 23-Nov Delayed; Post offer free float 6.5%.

PATNI 14-Mar-12 Delisting Offer 18% Rs 520/

356.74 $1330 28-Mar 28-Mar 30-Mar Last trading day:18May

MCDOWELL-N 9-Nov-12 Open

Offer 26% Rs 1440 $1bn 7-Jan 10-Apr 26-Apr Some unacceptable clauses led to delay. Miniscule tendering.

HINDUNILVR 30-Apr-13 Open Offer 22.52% Rs 600 $5.4bn 30-Apr 4-Jul 4-Jul On track; Voluntary

Mergers & Acquisitions M&A Activity

ENTITIES TYPE BEGIN END PANTALOONR/FRL (DVR spread) Demerger Apr-13 Jul-13 IVRCLINFRA-IVRCLAH Merger Nov-11 Sep-12 PIRHEALTH-PIRLIFE Merger May-11 Jan-12 JSWISPAT CRPS – EQUITY Restructuring Dec-10 Sep-12 ICICIBANK-BANKRAJAS Merger May-10 Aug-10 RPOWER-RNRL Merger Jul-09 Nov-10 ULTRACEMCO-SAMRUDDHI Merger Nov-09 Jul-10 SIEMENS-SHDL Merger Nov-09 Mar-11 ZEEL-ZEENEWS Restructuring Oct-09 Apr-10 ZEEL-ETC Merger Dec-09 Sep-10

Capital Issuance Activity

ENTITIES TYPE MONTH PARTICULARS

ONGC FPO SEP-11 Had recommended profitable option strategies; FPO was called off, but strategies still made profit

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Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives and Private Client Group. This report has been prepared by Institutional Equity Derivatives. The views and opinions expressed in this document may or may not match or may be contrary at times with the views, estimates, rating, target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd. This report is issued by PhillipCapital (India) Pvt. Ltd. which is regulated by SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only and neither the information contained herein nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment or derivatives. The information and opinions contained in the Report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication to future performance. This report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax and financial advisors and reach their own regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. In no circumstances it be used or considered as an offer to sell or a solicitation of any offer to buy or sell the Securities mentioned in it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which we believe are reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request. Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst’s personal views about all of the subject issuers and/or securities, that the analyst have no known conflict of interest and no part of the research analyst’s compensation was, is or will be, directly or indirectly, related to the specific views or recommendations contained in this research report. The Research Analyst certifies that he /she or his / her family members does not own the stock(s) covered in this research report. Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it or its affiliates may hold either long or short positions in such securities. PhillipCapital (India) Pvt. Ltd does not hold more than 1% of the shares of the company(ies) covered in this report. Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic or political factors. Past performance is not necessarily indicative of future performance or results. Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material and are subject to change without notice.Furthermore, PCIPL is under no obligation to update or keep the information current. Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorized use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permitted without the PCIPL’s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety. Caution: Risk of loss in trading in can be substantial. You should carefully consider whether trading is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances. PhillipCapital (India) Pvt. Ltd. 2nd Floor, C-Block, Modern Centre, Mahalaxmi, Mumbai - 400011

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