OYO’s bonus shares worry unlisted shareholders

General
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Many people think buying unlisted shares makes them early or smart, but it usually does the opposite. These so called early chances mostly help promoters and insiders. By the time retail investors enter, the plan is already made, and they are the ones left with little to gain.

Look at OYO. The company recently sent a postal ballot to shareholders on October 27 with three normal-looking points. One of them was a Bonus CCPS issue.

A Bonus CCPS is not a normal bonus share. It means Compulsorily Convertible Preference Shares which later turn into equity only if the company meets certain conditions. In simple words, it is like a lottery ticket that pays only if the company decides to go ahead with its IPO or meets a target they control. In this case, the setup clearly gives insiders an advantage over small investors.

For every 6,000 shares held, investors got 1 Bonus CCPS. If you ignored the email or did not reply within three days, it automatically becomes one regular share later, which means you get almost nothing extra. If you replied and chose the other option, and OYO appoints bankers for its IPO this year, that same CCPS becomes 1,109 shares. If they do not appoint bankers, it becomes almost worthless.

Investors were given only three days to respond. Most small shareholders would not even see the email or understand what it meant. The people who already knew about it, like promoters and insiders, could easily take the better option and end up owning a much larger part of the company.

This is not about rewarding investors. It is about moving value to those already in control. If someone offers you unlisted shares saying it is an early chance, remember you are not early, you are being fooled. Stay away.

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The recent IPOs have almost all been about cashing out for promoters. Nothing new. Most of the new IPOs are listing at super high valuations, so that they can hit the headline, retailers enter due to the hype, promoters cash out and then retailers are stuck.

It is frankly up to the investor to do their due diligence before investing, and SEBI’s job to protect. But when the regulator itself is corrupt, then there is no sense in expecting investor protection.

The markets are now all about quick money - for the most part. Value addition has taken a back seat, and ride the hype wave is becoming the new norm.

This is will go on for a while - changes will come as more and more people lose money and realize their mistakes. But even then, new investors will keep entering and falling for new traps.

The best thing for everyone is to do their own due diligence, and dont hype-buy.

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Here’s a tweet that I came across explaining the controversial CCPS bonus issue of OYO.

I’m in no way trying to justify this questionable move by OYO regarding the opt-in condition for its CCPS bonus issue.

But at the same time, do these small shareholders deserve our sympathy for their ignorance (not innocence)?

Did OYO do anything that is not legally permitted?
Maybe, maybe not.

Forget the condition of opting-in or replying to the postal ballot for the eligibility of CCPS bonus issue, do we know how they even arrived at this number of 6,000 shares?

What if majority of the small shareholders held less than 6,000 shares each and OYO knew this and intentionally arrived at this number to exclude them from this bonus issue?

Unlisted entities are unregulated and the promoters enjoy full control over its management, therefore many such decisions may not be taken in the best interest of small shareholders, because retail shareholders were never meant to hold any shares in unlisted entities.

Although anyone holding shares of value ₹200,000 or less in a company is considered a retail investor, I don’t think it would be right to use that term for the investors in unlisted shares.

For the unlisted market, the more appropriate term would be ‘Gamblers’, gambling away their money with the hope of making multibagger returns.

In the context of OYO, given that one is required to hold at least 6000 shares to be eligible for CCPS, a person should have invested at least ₹1.5 lakhs (using an avg price of ₹25 per share).

If someone is willing to invest that much in an unlisted entity, logically, they aren’t the usual retail investors, these are people with enough disposable income, who can afford to take such risk and not worry if their bet fails.

Here’s an interesting post on the topic of unlisted shares that I was reminded of.

Despite all the regulatory protections, transparency, quarterly disclosures, research, and tools, people suck at picking listed stocks. Forget retail investors; even professional fund managers are notoriously bad at picking stocks. To think that one can successfully pick unlisted shares, which are not regulated and have poor transparency, horrible disclosures, and almost no research coverage, is a delusion that can only be caused by the consumption of copious amounts of illegal substances, especially the powdery kind.

As exciting as it is to find exotic and thrilling ways to lose money, you are better off donating that money to charity. Or better yet, lose money in regulated and listed securities; why lose money in unlisted securities?

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Looks like all the noise worked. OYO has now rolled it back.