Ranbaxy deal - no block deal

Sandeep Parekh — Fri, 17 Oct 2008 09:55:00 GMT

See my previous post on the sale of shares by Ranbaxy to Daiichi. It appears that the two parties could not place a bulk deal order on the exchange as the differential in price negotiated and the current market price is a huge number. So burning through the order book may not be viable, (see my previous post for explanation of the lingo and context) though I still think burning through will be cheaper than paying Rs. 1000 crore (Rs. 10 billion) in capital gains taxes.

The option of a block deal is not available as the rule only permits a 1% variation in negotiated price compared to the market price. Block deals are over the counter trades in securities which are only reported to the market (in effect as they don't enter the order book). SEBI has rightly rejected an application to exempt the parties from the 1% variation rule which applies to all those who wish to use the block window. Can't really have it both ways - don't want to use the bulk trade order book because it is expensive and seek a special exemption from the regulator contrary to the regulations. The choice is between paying the capital gains tax or using the bulk route - take your pick.

Though in these times, the Finance Ministry would be happy getting a sum of a thousand crores by way of tax.

See news report on the SEBI denial of special case exemption.

PS: Actually the differential between the two or three routes possible is not very large in this case, as sale by a corporate entity is liable to Minimum alternative tax (in the range of 11%). As much of the stake is held in corporate entities's names rather than the Singh familiy in individual names, the difference between long term capital gains tax (also in the region of 11 %) and MAT payable would not be substantial.

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Initial Private Opinion : finance ministry

Ranbaxy deal - no block deal