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CRISIL Open Offer: Subscribe or Not to subscribe?

CRISIL is the leading credit rating company in India. It researches other companies and gives rating to IPOs, other financial debt and equity instruments. It is completely debt free and is one of the best mid to large cap company one can invest in. It also has a good management team and reporting profits year after year. It has always enjoyed being the pioneer in the industry and had good valuations.

Now, McGraw Hill Asian Holdings would like to increase the promoter shareholding in the company through an open offer priced at Rs. 1210/-. The open offer period is from July 24 to August 6, 2013. So, the price would be stabilized around Rs. 1210/- till the end of the offer period and then goes back to the real valuation from the market. McGraw Hill Asian Holdings currently hold 52.77% and would like to increase another 22% through this open offer.

What does it really mean when a company is making an open offer?
If a company is making an open offer, it actually believes in the business more and would like to invest in its vision more. If companies are having excess cash, they can buy back the outstanding shares.

How does it work out?
People who have the company's shares can apply for the open offer. Based on the number of shares tendered, company will give the open offer price to the qualified shares. If the total number of shares tendered at the open offer price is exactly 22% , all the shares tendered would be given the offer price. If the number of shares tendered is more than 22%, say 44%, one in two shares alone would be given the offer price.

Can I buy now? Is it an arbitrage opportunity?
The current quoting price of the stock is Rs. 1185.15/-. The open offer price is Rs. 1200/-. The difference is Rs. 24.75/-. This seems to be an arbitrage. Yes. There is an opportunity. But how big? If you buy the stock now, you will end up paying a brokerage of 0.5 to 1% based on the broker. It sums up to Rs. 11.85/- . After this, you need to pay tax on the profit. This profit will be added to your income and would be taxed at your tax rate. So, if you are in no tax bracket, you can get Rs. 13/- per share as arbitrage.

There is a catch though. Not all the shares tendered will be taken by the company. If everyone tenders their shares (worst case), only one in two shares will be given the open offer price. And, think of the higher risk. If the price of the stock moves down after the open offer (which is most likely based on the previous open offers from various other companies), you will end up making a bigger loss.

Current shareholding stays at
Promoters: 52.77%
Foreign Institutional Investors: 10.35%
Domestic Institutional Investors: 16.15%
Others (Public) : 20.73%

If the Institutional investors doesn't tender any of their shares, every retail investor who gave his shares would get the open offer price.

The arbitrage opportunity was huge when the announcement of the open offer was made on July 23, 2013. The shares were promptly rose by 20%.


I already have CRISIL shares. Should I subscribe for the open offer?
It really depends on your scenario. The open offer price is better than the secondary market price and this would mean you can make better money by selling to the open offer price. The profit that you make here will be taxed as per your tax slab. This profit will be added as your income. If you stand in more that 10% tax slab and you have bought the shares about a year back, it always works out better to sell it in the Secondary market. This is because, there will be no tax for long term gains as STT is paid in transactions made through the market. So, the additional profit that you get from open offer price is completely wiped off by your taxes.

If you had bought this in less than an year and you fall in 20% tax bracket or less, you need to see how much will be your taxes in both the cases and identify the best case. Hopefully, tendering the shares would make much sense for you here.


CRISIL, as such, is a good share to own. It always have moved from one strong position to another strong position. They have a niche and is a great share to hold. If you want to make use of this open offer opportunity, you can probably sell this now and buy this at a lower price after the open offer.

Let me know your comments and on your decision. All the best.

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