Anand Rathi spots arbitrage scope in NMDC buyback; just check it out

State-owned iron ore producer NMDC has decided to fix January 18 as the date to pick shareholders who would be eligible to participate in the company’s nearly Rs 1,000-crore share buyback.

“NMDC has fixed January 18, 2019 as record date for determining the entitlement and the names of eligible shareholders/beneficial owners to whom letter of offer will be sent and will be eligible to participate in the buyback of 10,20,40,815 shares fully paid-up equity shares of the company,” NMDC said in a BSE filing on Wednesday.

The government holds 72.43 per cent stake in NMDC.

Brokerage firm Anand Rathi Financial Services sees an arbitrage opportunity in NMDC buyback announcement.

“We have assumed the acceptance ratio is 22.6 per cent and advise that traders who want to participate in the buyback can buy 2,000 shares from cash market in three different demat accounts at the current market price of Rs 91 and not more than 2,000 shares in an individual account and simultaneously hedge by selling one lot of January futures in a single account at 91 where the lot size is 6,000. Also, one has to monitor that shareholders holding should be less than amount Rs 2 lakh as on record date to qualify for this buyback,” the brokerage firm said in a report.

Shares of the company settled at Rs 91.40, down 3.74 per cent against its previous close.


The brokerage house added that the breakeven point is the buyback price. So, when the stock price reaches the buyback price, traders should exit from the strategy without tendering for the buyback.

On the other hand if and once the quantity is tendered for the buyback, one should square-off remaining position immediately, it stated.


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