Mahindra Satyam was down 25 % on 24 , Sep 2010 because Tech Mahindra will delist the stock from NYSE from 14th October. The company has said that they are delisting the stock from NYSE as they may not be able to meet regulatory guidelines in declaring results with US regulator SEC.
From 15th October, Mahindra Satyam will be traded in US on OTC desk.
The question is how would Satyam react on Monday on Indian Bourse.
Please understand the facts before you decide.
a) ADR are traded on American stock Exchange and American investors can participate in the company.
By buying ADR the investors are not required to follow SEBI and Indian government guidelines and law. Also they are not exposed to Exchange rate risk of currency. Also it's easy for them to trade in that stocks.
Because of such reasons ADR are always quoted at a premium to price at which they are traded in their country (Satyam ADR and Satyam price on NSE). This is true for most of the ADR and the same was true for Satyam.
That's the reason we have seen few sponsored ADR like Infosys Tech.
b) ADR of Indian stocks are two way fungible, it means that ADR can be converted in Equity any time if Equity price is more than ADR conversion price. Also Equity shares can be converted into ADR if ADR is quoting at a premium to Equity price , subject to maximum of the issue size of ADR.
c) The price of Satyam ADR was 6.12 $ before the notice of delisting. At price of 6.12 $ , The rupee value (Conversion value at 45.50) of ADR was Rs 278.50. Each Satyam ADR is equal to 2 Shares of Satyam. So the value of Satyam should be 139.25. which is at 39 % premium to Equity price at Rs 100.25.
d) Satyam ADR closed at 4.67 $ recovering from 4.38 $. The rupee value of Satyam ADR would be (Conversion value at Rs 45.50) Rs 212.50. Each Satyam ADR is equal to 2 Shares of Satyam. So the traded value of Satyam is 106.25.
Does it mean that Satyam stock will open sharply lower on NSE on Monday , because the ADR was down by 25% ? I doubt about the free fall.
The fact as I can infer is that Satyam ADR was quoting at a premium to spot price to the tune of approx 40%, but with delisting of ADR from Stock Exchange, it has to lose its premium which it was commanding as a listed ADR, but now it would be traded on OTC desk making it illiquid stock and again that will compel investors to quote lesser ADR premium. The fact that Satyam ADR made a low of 4.38 $ at which the conversion value comes to 99.50 per share and than it bounced back.
Also the fact is that the Satyam ADR volume was around 2.17 crores shares on NYSE, it seems huge quantity of shares have changed hands and there are contrarian bets.
I agree that with fall in ADR price, there will be pressure on Satyam stock but it should be looked sentimental fall and nothing has changed in company for us.
The Satyam ADR was commanding a premium on Satyam stock as it was listed in NYSE. With delisting of Satyam ADR from NYSE has shranked is on the premium on ADR and there is no fundamental change in value of company.
We can look forward to results of the company before taking a Investment decision.