Shikhar Insurance FPO: Investors in Limbo, Is there Bonus Share or NOT ???

Shikhar Insurance Company Limited (SICL) has floated its Further Public Offering (FPO) of 5, 10,988 kittas shares at Rs 650 per unit from Mangsir 17. FPO is set to close tomorrow, Mangsir 21, at the earliest. FPO has collected Rs 5 crore on the first day.

The company is yet to declare dividend from the profit of last fiscal year. As per the company officials, there will be stock dividend of at least equal to the last year's dividend i.e 20%.  However, no one can say for sure if FPO investors will get this dividend.

The BoD of the company has decided that any dividend handed out this year would be distributed as per the regulations. The BoD meeting has just kicked the can down the road without showing enthusiastic effort to solve the issue.

We have compiled the reasoning from both camps of investors who are confident that FPO investors will get and will not get the bonus share from Shikhar Insurance.

Let's begin as a devil's advocate and see reasoning behind investors who say FPO investors will NOT get the bonus share

1. Reluctant company

The company officials are tight lipped when it comes to the stock dividend issue for the FPO investors. The only thing they will tell you on record is "any dividend handed out this year would be distributed as per the regulations". This is a clear red flag from the point of marketing. The first rule of marketing is that if you have something very good with you then you should blow your own trumpet as hard as you can. So, if the officials were really 100% sure that they will give bonus shares to the FPO investors then they would have advertised about it in every opportunity they get! The reluctance in the company's part does not send a good message to the investors.

2. Common Sense

Well, some wise fellow has said that common sense is not that very common among people. The FPO is injecting fresh capital to the company at a premium price. The FPO investors have invested nothing to generate the profit in the last fiscal year. In this sense, the FPO investors would not be able to get dividend from the profit of last fiscal year. They would only be able to claim the dividend from the current fiscal year. In simple terms, Rs 550 paid as a premium is just an amount paid for the fundamentals and the good will of the company.

1. 70:30 ratio

At present Promoter and ordinary share structure in the insurance company stands at 80:20 ratios. FPO is set to convert the share structure of promoter and ordinary shareholders to 70:30 ratio. If the FPO investors were to be denied the bonus share then 70:30 ratio of promoter to public ratio would not be maintained.

2. Premium of Rs 550

The investors are paying a premium of Rs 550/unit in the FPO. Some investors have argued that paying this premium gives them the equal opportunity as other investors of the company. As FPO investors would share the liabilities, if any, of the company immediately after FPO, they should be entitled to the dividend given after FPO.

The company has chosen to maintain the status quo without clearly stating its position and intentions. Many investors have steered away from this FPO as they believe that this is not a good deal. There are equal numbers of investors, if not more, who are excited about the FPO as they believe this is the best deal you can get in short and long term.

Applying for FPO is definitely a better deal than depositing your money in the banks for almost negligible interest. However, if you are investing by borrowing then you must carefully weigh your options as this could prove to be a costly deal.

At last but not the least, all the investors applying for the FPO must have mindset that they might not be entitled to the dividend from the profit made last year. This will help lower the risk and disappointment if things were to go south for the FPO investors.