We would like to bring to your notice an interesting Demerger arbitrage opportunity from Alpha Plus Portfolio, with a good scope for land bank value unlocking.
By now, you may already be aware that arbitrage opportunities are to a large extend immune from market risks , however every now and then we come across an opportunity which provides scope for value unlocking of land bank.
Earlier we had worked on the demerger opportunity of TCI Ltd and TCI Developers, which resulted in a gain of more than 50% in just 6 months, while with this one we expect higher return as the stock is already quoting at very low valuations with complete disregard for ~ 200 acres of land bank with the company.
More importantly the company has already started with the process of monetization of land bank with the development of housing projects and with the view to unlock value for shareholders, is demerging the land bank along with the housing projects into a separate company.
Normally we do not like real estate companies as an investment option, however in this demerger case we are getting the above mentioned land bank of approx. 200 acres almost free of cost at current valuations and it is this land bank value which the company wishes to unlock by demerging Residential township unit into another listed company while the original company will continue with its existing operations.
We expect decent returns over the next 3-4 months in this opportunity, as the value of land bank is almost equal to the current market cap of the company, while the existing operations of the company command a premium.
In case of demerger opportunities, it’s important to keep a track of proceedings and reduce market risk by timing the purchase of shares so that there’s less time gap between the purchase and the record date (not more than 2-3 months). The company has already received the approvals from the following:
- Board of Directors,
- Secured lenders, creditors, etc.
Now, only the high court approval is pending and once this approval is received the stock should start witnessing buying interest from the informed and the smart investors. As per our talks with the Company Secretary of the company, the approval from the High Court is expected by the mid/late Jan’12
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