Weekly News - Orchid Chemicals plunges on promoter follies

Shares of Orchid Chemicals & Pharmaceuticals Ltd. plunged nearly 50% this week on news that two financial institutions had sold promoters' shares as they could not meet margin calls. On March 17, the stock tumbled 39.09% to Rs127.05 and lost another 10% on Tuesday to Rs113.60. On Wednesday, the stock closed 2% higher at Rs116. Kailasam Raghavendra Rao, founder and MD of the Chennai-based company said it incurred a personal loss of Rs 750mn after his lenders sold off 7.5% stake from his family's holdings on March 17. He denied market talk that the company has suffered forex losses. However, some industry analysts feared that the biggest danger is that the company could become a takeover target now that the promoters' stake in the company is just 17%. In March-April 2007, Rao borrowed around Rs 850mn from Indiabulls and Religare to raise the promoters' stake from 17% to 24%. Rao cleared his dues to the two lenders, but still owed nearly Rs 650mn to the FIs and his current stake is pledged to them. Commenting on the recent developments, Orchid Chemicals spokesperson said a combination of macro factors and market rumors contributed to the sudden negative sentiment on the stock.