After the spectacular fall in shares of GTL Infrastructure Ltd. and GTL Ltd. Monday this may seem like a good time to enter the companies’ stocks at bargain prices. But investors should hold off: the reasons for the sell-off remain unclear and the group’s businesses face significant challenges ahead, analysts say.
On Monday GTL's shares plummeted 64% to an all-year low of 124.10 rupees ($2.8) and GTL Infrastructure's fell 47.0% to an all-time low of 15.75 rupees ($0.4). GTL derives a bulk of its revenue from telecom tower firm GTL Infra, in which it holds a majority stake. Analysts blamed the fall on rumors that lenders to whom GTL's founders had pledged stock had sold the shares in the open market. The group denied that any pledged shares had been sold. It is unclear which banks the founders had allegedly pledged the stock to.
Market talk that India was seeking to impose a capital gains tax on transactions routed through Mauritius shook the entire market, adding to the pressure to sell GTL and GTL Infra shares. On Tuesday morning, Indian Finance Minister Pranab Mukherjee confirmed the two countries had resumed talks on their tax avoidance treaty.
On Tuesday, GTL gave up early gains and was trading 3.3% down at 123.85 rupees in afternoon trade, while GTL Infra rose 1.2% to 17.05 rupees ($0.4). The Sensex was up 0.6% in volatile trade as investors, nervous about possible changes in the India-Mauritius tax treaty, were using minor rallies to exit stocks.
GTL shareholders' woes began on Friday after the Economic Times reported that GTL Infra had scrapped plans to raise about $300 million from institutional investors due to adverse market conditions. The news sent shares of GTL and GTL Infra tumbling 16.5% and 7.3% respectively on Friday. GTL Infra Monday clarified it had “never launched any road show” for the planned share sale as market conditions, global sentiment and cla [...]
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