Rustomjee Promoters Announce ₹252 Cr Stake Sale

The real estate major behind the “Rustomjee” brand, Keystone Realtors Ltd. promoters announced their 3.63% stake offload intention.Boman Rustom Irani, Chandresh Dinesh Mehta and Percy Sorabji Chowdhry form the promoter group. They have planned to offload stakes worth ~₹252 crore, comprising as many as 4.58 million equity shares. The stake sale would be via OFS (Offer for Sale), with floor price set at ₹550/equity share.

• On Oct 15 - OFS opens for non-retail investors (T day)
• On Oct 15 - OFS opens for retail investors (T + 1 day)

The OFS floor price is representing a 10.2% discount over its last closing price (Oct 14) of ₹612.45/equity share on NSE. With the company’s founders diluting their holding, the key question on every investor's mind is: what is the strategic rationale behind this move, and how should the market interpret this signal?

What are the Mechanics of the OFS?

The OFS structure is designed in consideration of the regulatory requirements. It is also set diligently to ensure a smooth transaction. The deal is structured with a base offer and an oversubscription option, providing flexibility based on investor demand.

The breakdown of the main OFS details is given below.

• Offer Size: The total offer value is ~₹252 crore, offering 45,76,000 equity shares, which represent a divestment of 3.63% of the company's total equity share capital.
  
• Floor Price: The floor price is fixed at ₹550/equity share. This is the minimum bid price for participants in the OFS and represents a discount from the stock's closing price on Tuesday, Oct 14.
  
• Timeline: The OFS opens for non-retail investors today and a minimum of 25% of the offered shares would be reserved for mutual funds and insurance companies. This is subject to valid bids at or above the floor price. A window for retail investors, who have a 10% reservation in the offer, will open tomorrow, Oct 16.
  

But why are they choosing to sell now, especially when the real estate market, particularly in their core Mumbai region, is experiencing a strong upcycle?

Why Are the Promoters Selling, and What's the Broader Context?

A regulatory mandate is primarily driving the current OFS. The SEBI (Securities and Exchange Board of India), in its MPS (Minimum Public Shareholding) norms, has mandated a minimum public float of 25% shareholding. As per the norms, all listed companies need to maintain a promoter and promoter group shareholding within 75%.

Keystone Realtors' promoter stake had stood above the regulatory ceiling following their Nov 2022 IPO. This OFS is a necessary and pre-planned step to bring their shareholding in line with these mandatory requirements. Earlier in May 2024, Keystone Realtors had launched a QIP to raise ₹1000 crore, for nearly a 10.6% equity dilution.

This move, by Keystone Realtors comes as a part of its natural evolution as a real estate market leader in the MMR (Mumbai Metropolitan Region). With more than two decades of existence, Keystone Realtors operates under the iconic “Rustomjee” brand. The brand is known for its diverse portfolio of luxury, mid-market and affordable segments, alike. Moreover, its journey from a private developer to a publicly listed company has called for such structural adjustments. The major regulatory overhang is to be resolved by the successful completion of this OFS. It has for long been on the institutional investors’ radar since listing.

How Can Investors Interpret This OFS?

For investors, it is crucial to look beyond the headline of a "promoter stake sale" and understand the underlying context. In this case, the OFS is a positive sign of good corporate governance and adherence to regulatory timelines.

Its potential impact can be summarised into three main points.

• It is Not a Negative Signal: It is essential to reiterate that this is a regulatory-driven sale. It is not a case of promoters cashing out due to concerns about the company's future. The move is a procedural necessity to improve the public float and align with SEBI's framework for listed entities.
  

• Can Have a Short-Term Price Impact: An OFS is typically conducted at a discount to the prevailing market price to attract investors. This can exert some downward pressure on the stock price in the immediate short term as the market absorbs the new supply of shares. The floor price of ₹550 will be a key psychological level for traders to watch.
  

• There are Long-Term Positives: Looking at the bigger picture, the successful completion of the OFS is beneficial for the stock in the long run. It removes the uncertainty related to MPS compliance. More importantly, increasing the free-floating stock enhances liquidity, making it easier for large institutional investors and mutual funds to build positions, which can lead to better price discovery and stability over time.
  

The current stakeholder offload move is coming from a regulatory perspective. However, only time will tell its real impact on the stock movement.

Source

NDTV Profit
CNBC TV 18
CNBC TV 18 old article
Chittorgarh
ScanX Trade
Moneycontrol