Sep 08, 2010 (LBO) - A bidding war has erupted over a listed Sri Lanka shell company that has no revenue earnings business and only some cash assets left, shedding some light on the market value of a stock market listing and raising fresh questions about illiquid shares.
Watapota Investment PLC, a member of the Carsons Cumberbatch group has seen a bid for its stock doubled to 80.20 rupees a share by IIFL Securities, a newly established brokerage connected with India Infoline.
Carsons owns 86.7 percent of the firm.
IIFL topped a previous bid by Capital Alliance Holdings, another investment firm for 40.60 rupees.
"We think that a listed company has a value," Ajith Fernando. "To gain a listing you have to spend money and time. So the price we offered was a reflection of that value to us."
Carsons said Wednesday that it was evaluating the new bid.
Watapota, an investment holding company, became shell company after Carsons transferred some of its investments out and paid out a 132 rupee dividend with the proceeds in June.
The firm now has about 22 rupees net book value in cash per share.
The Capital Alliance bid valued the firm at 27.2 million shares which indicated a premium over book value of 12.4 million rupees.
The IIFL bid values the firm at 54.4 million rupees, effectively placing a 39.7 million rupee value for a listing as the company has not other assets.
In the past several companies have been bought by investors who then gained a backdoor listing by buying into firms with no operating businesses to speak of.
These include Central Securities now called Kshatriya Holdings, CF Venture Fund, now called First Capital and Walker and Grieg now called Environmental Resources.
Analysts say buyers have paid higher effective premiums for listed shell companies earlier.
But the most curious aspect is that the firm's minority shares are trading in the secondary market at over 1,600 a share, indicating an extraordinary market capitalization value of 1.1 billion rupees.
Analysts say a charitable interpretation of the phenomena is that buyers are remarkably ignorant, but a different view is that it an example of how easily illiquid shares could be manipulated by interested elements.
Only 17,400 of the 671,008 shares of Watapota are deposited in the scripless system
source - www.lbo.lk
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