THE BONUS CCPS - Oyo's dilution Saga

Working out valuations, I came across various complex financial instruments designed for specific purposes - tax planning, shareholding optimisation, among others.

For example, the most basic - a company issuing complex instruments (Convertible preference shares/CCDs/Warrants) to optimise the tax liability at exit or IPO listing.

Frankly, the terms in these agreements - the complexities are staggering, and one has to respect the sheer ingenuity required to construct them.

But what OYO was trying to do with its recent postal ballot was beyond comprehension - it was a daylight heist of ownership from retail shareholders.

Kudos to Mohit Gang and Jayant Mundhra for bringing this to light, and the subsequent outrage resulted in the rollback of the postal ballot proposal.

-----

What was the instrument?
A bonus CCPS!

1 Bonus CCPS - for every 6000 shares

But with a catch - It gave an option to shareholders

1. Riskfree -> 1 CCPS = 1 Equity Share

2. Supposedly Risky -> 1 CCPS = 1109 Equity shares if the company is able to appoint a Merchant Bank in FY 25-26; otherwise 1 CCPS = 0.1 Equity Share.

On paper, it seems to be a fair deal, but it's not

1. Shareholders were given 3 days to reply to opt for Option 2, with the application and other documents.

Now, retail shareholders - either ignore the mail or might not be able to figure this out in a long document.

If not opted, default is option 1.

2. Option 2, which seems risky on paper, is not so in essence - with very high upside and very low downside. 

If the promoters appoint Merchant Bankers, which they must be likely to do so, they gain 1109 shares for 6000 shares.

And retail (if not opted)? 1 share for 6000 shares.

It's a net gain of 1108/6000 = ~18.5% to those who opt in (most likely promoters).

This blatant attempt to dilute retail shareholders was ultimately withdrawn after the public backlash, proving that shareholder activism works.