A Day After: Existing Sintex Shareholders Stare At Market Void
A day after Reliance Industries took over the debt-ridden Sintex Industries, the existing shareholders of Sintex find themselves at a loss, with the stock price now valued at nil.
Early yesterday, as news came of Reliance Industries' being one of the forerunners in the bid, investors were still buying shares of Sintex Industries. But then the news came that, as part of the more than Rs 3,650 crore deal, the existing shareholders would have their entire value written off. Not only that, the stock will also be delisted from the stock exchange.
That said, the lenders will get a 15 per cent equity holding in the company, though the insolvency resolution deal did not disclose many details about which specific lenders will be repaid how much.
As per the Resolution Plan of Reliance Industries Limited jointly with Assets Care & Reconstruction Enterprise Limited, it is proposed that the existing share capital of the Company shall be reduced to zero and the Company will be delisted from the stock exchanges, i.e., the BSE and the NSE," the exchange filing said.
Incidentally, the dilution of the entire value of equity shareholders in companies admitted to insolvency proceedings is nothing new. Previously, the equity shareholders of Amtek Auto, Kingfisher Airlines, Essar Steel, and others admitted to insolvency proceedings and lost their entire investments.
How Is the Insolvency Playing Out?
Sintex Industries failed to honour its debt repayment of more than Rs 7,000 crore to a consortium of lenders led by Punjab National Bank (PNB) in 2021. Talks with Welspun Corporation for a possible takeover failed as well, and ultimately, the Ahmedabad bench of the National Company Law Tribunal (NCLT) admitted proceedings against Sintex for the recovery of dues on April 6, 2021.
The NCLT had admitted claims of Rs. 7,719 crore from financial creditors, Rs. 74 crore from operational creditors, and Rs. 11 crore from employees of Sintex Industries.
Four companies submitted their respective bids for Sintex Industries. The Reliance Industries' joint bid with Assets Care & Reconstruction Enterprise Ltd (ACRE) was accepted by the Committee of Creditors (CoC) who voted in favour of this via e-voting means.
In a regulatory filing, Sintex said: "The e-voting on approval of the resolution plan was concluded yesterday, i.e., 19.03.2022 at 10.00 p.m., and the resolution plan submitted by Reliance Industries Limited jointly with Assets Care & Reconstruction Enterprise Limited has been duly approved by the 100% CoC members under Section 30 (4) of the Code as the successful resolution plan subject to approval of the Hon’ble NCLT Ahmedabad."
Why the buying?
Some investors, despite knowing that the value of Sintex’s equity shares would be entirely written off, still bought it. It is concerning that we still have a few customers still buying Sintex shares even after this nudge that the stock price will go to 0 and mandate a TOTP.
Not only Sintex Industries, but people also bought the shares of Sintex Plastics Technology Limited as well.
Why Should You Not Do This?
A 52-week high-and-low is a popular market phenomenon that is based on the stock price touching a yearly high or low. A lot of traders and investors use this metric to buy and sell their investments, and some have even tuned their trading software to automatically execute trades using this metric.
But you should not use this metric to buy Sintex (both plastic and industrial) shares now just because they are available at a 52-week low. Trouble for one group company usually means trouble for the other group companies, too.
As of now, trading is suspended in Sintex Industries shares but is open in Sintex Plastics Technology. Rs 49.56 lacs (Rs 26.67 lacs as of 2.18 pm on March 23rd) worth of shares were traded in Sintex Plastics on the NSE on March 22nd, 2022.
The Sintex Story:
As it turned into a multibagger stock, Sintex Industries became a household name in the investing community. In 2016, Sintex’s promoters decided that they should demerge their core and non-core businesses to unlock more value for shareholders. Thus, this led to the creation of two listed Sintex companies, namely, Sintex Industries—textiles and yarn, and Sintex Plastics Technology—plastics, moulding, prefab and infra.
