Thursday, July 12, 2012

OnMobile Bought by Societe Generale

Mouli Raman, Co-founder & Interim MD,
OnMobile Global Ltd.

By Special Correspondent:
09:33 PM IST, Thursday, 12th July 2012:

OnMobile Global Ltd (BSE: 532944, NSE: ONMOBILE) counter in NSE on Thursday witnessed a major buy of 8.04 lakh shares by the leading French bank, Societe Generale.

The deal was disclosed at National Stock Exchange after Thursday’s trading hours.

Societe Generale invested Rs. 3.04 crore to pick up a 0.70% stake in the company at Rs. 37.80 a share. The actual stake may be slightly higher as OnMobile Global had recently concluded a share buyback of 40 lakh shares which will result in these shares being extinguished.

Though the buy by the second largest French bank is not a massive one, compared with recent buys by the Domestic Institutional Investor, HDFC MF, which StockExplain News had reported, it is nevertheless significant considering the tumultuous time this listed mobile VAS player is going through.

OnMobile Global has been rocked in recent days by the exit of Arvind Rao, its Co-founder, Managing Director, & former CEO. Rao had resigned after a Board ordered audit by KPMG found several weaknesses in corporate governance during the period when Rao was the Chief Executive.

The way in which Rao resigned, or was removed by the Board, without the company admitting any financial losses or any explicit wrongdoing has raised regulatory eyebrows in India. 

In a proactive gesture, India’s Ministry of Corporate Affairs (MCA) has ordered a probe by Registrar of Companies (RoC) Bangalore, to investigate the issue. The Corporate Affairs Minister, Veerappa Moily has also indicated that in case RoC unearths anything significant, the Ministry’s Serious Fraud Investigation Office (SFIO) may be called in.

India, apparently is taking no chances after the Satyam fiasco, but according to the Minister it is too early to say whether the OnMobile case is one of inflated revenues like Satyam’s.

It is on such a backdrop, that the buy by a leading investor like Societe Generale assumes significance. Apart from Societe Generale, other institutional investors like Barclays, Goldman Sachs, Merrill Lynch, & HDFC Mutual Fund had also picked up significant stakes, during the past two weeks, in this troubled mobile services company with a global footprint.

The obvious logic seen from these buys is that most of the bad news is already reflected in the current share price. Interestingly, even the buyback was not enough to stop the long running slide in prices before the rebound occurred due to the institutional buys. 

However, one large institutional investor, American Funds, has been taking a contrary call by exiting fully from the scrip.

Most market commentators are impressed with the business model of OnMobile, and another strength of the company has been its relatively proactive Board headed by Chairman HH Haight who has been one of the first and largest investors in the company.

It can be easily seen that the FII buys are largely due to the explicit or implicit assurances evident from the Board led by Haight who heads Argo Global Capital which has several institutional investors participating in its telecom focused fund.

However, the market is also abuzz with speculations whether OnMobile Global would eventually be taken over by another IT company, like how Satyam was taken over by Tech Mahindra and renamed as Mahindra Satyam. Such doubts arise also because, despite the current Board headed by HH Haight being proactive, it misses the abilities of Arvind Rao who has been heading the business side of OnMobile for long.

Some of the FIIs also seems to have a double mind on the prospects of OnMobile. Goldman Sachs which had bought 12 lakh shares during early July, offloaded more than half of it on Monday, and bought back slightly more than what it sold off, on Thursday.

The scrip has been witnessing high volatility in recent days, but it is up by 30% after StockExplain News reported the first buy by HDFC MF & Goldman Sachs. 

On Thursday, also aided by the buys by Societe Generale and Goldman Sachs, the stock closed in green at Rs. 38.10 in NSE, up by 5.69%, despite the general market’s Nifty Index taking a hit of 1.34% and the key IT industry index CNX IT nosediving by 5.15% due to poor results from Infosys Ltd.