In what has come as a surprise to most investors and market watchers, Hexaware promoters, Baring PE Asia has announced intent to delist Hexaware from the Indian stock exchanges. The company's board will meet on June 12 to discuss the nitty-gritty.
So, what is the rationale of the delisting? People in the know have told CNBC-TV18 that Baring PE Asia wants to eventually sell Hexaware
and delisting the company will help them get better value.
"Hexaware believes it that the market value of the company is lesser than what it can reach and it feels that delisting it will enable them to get significantly better value for their stake," said a source that did not want to be named.
Baring PE Asia currently holds a 62.4 percent stake in Hexaware. It had bought the company in 2013 from its promoter Atul Nishar and PE firm General Atlantic, followed by an open offer to public shareholders.
"In the last 2 years, the company has received offers from various PE players and IT companies interested in acquiring the stake. However, the value that they were getting was not up to their expectation;" said a second source.
Baring PE Asia believes that delisting will do two things. One, enable them to scale up Hexaware much faster, by way of acquisitions, partnerships, etc. Two, after achieving scale, selling the company to a strategic or financial investor.
The caveat here is that the delisting will keep their shares locked in for 12-18 months. When asked about how it would work with the shares being locked in a source said that the company will continue to hunt for buyers but a sale may not happen before 2-3 years depending on the value they can get and the scale they can achieve.
When contacted, a Baring PE Asia spokesperson said, “As required by regulations, all material information relevant to the shareholders will be detailed in the offer document relating to the delisting offer. BPEA continues to believe in Hexaware and will continue to support the company, clients, and employees."
It is noteworthy that Baring PE Asia had also bought NIIT Technologies in April 2019. When asked if merging with NIIT Tech, makes sense, Baring PE Asia responded, "As far as NIIT Tech is concerned, BPEA has already disclosed in its open offer that it would not merge NIIT Tech with any other portfolio for a period of two years. It is commercially not prudent to delist a company and then merge it with another listed company. These are therefore false, speculative, and misleading suggestions.”
In a research report, Kotak Institutional Equities said that the move opens up options for Baring PE Asia which gives it more flexibility. "The delisting process opens up two options, both of which provide BPE with greater flexibility. (1) More exit options from Hexaware open up once it is delisted. Onerous delisting norms have made India-listed assets less attractive for overseas strategic buyers although there are exceptions such as Virtusa’s acquisition of Polaris Software. Delisting will help BPE attract strategic buyers, i.e. IT companies with a presence outside India that are looking to expand offshore presence or add depth to verticals or access new markets. Strategic buyers end up paying a premium due to the value assigned to synergy gains. BPE can also use the overseas listing as a route to exit their holding and (2) it helps establish a floor to the stock price even if the delisting is not successful. The indication of equity commitment by BPE will aid in reducing the discount that HT Global’s bonds are trading to par value. This reduces refinancing risk."