Investors should hold onto investments in Thomas Cook India

MUMBAI: Investors of Thomas Cook should hold onto their investments in Thomas Cook India in the wake of the open offer presented by Fairbridge Capital, a subsidiary of Fairfax Financial Holdings.

For a stake of close to 25%, Fairbridge Capital has declared an open offer of Rs 65.48. At present the company’s stock is trading at Rs 62.75. Hence, there is very little investors can gain by tendering their shares in the open offer.

The difference between the offer and the trading price of the company is close to Rs 3. Due to this, investors would be left with no money after tendering their shares. It works this way: If an investor tenders shares to the company it is considered an off- market transaction.

In such case, she will have to pay capital gain tax at 30.9% for short term capital gain tax, while for long term capital gains she will be taxed at 20.6% post indexation or 10.3% without indexation, whichever is lower.

However if the transaction is routed through the stock exchange, the short-term capital gain tax stands at 15.45%, while in the case of long-term capital gains there is no tax.

Instead investors should hold onto the company’s stock for the long-term. Fairfax Financial Holdings, the parent company of Fairbridge Capital, has been strategic investor especially in the insurance sector. In collaboration with ICICI Bank, the company created ICICI Lombard, one of the largest private insurance players in India.

Investors must note that Fairfax Financial Holdings would a strong and able promoter to back Thomas Cook India. Being a profitable company and one of the biggest players in forex transactions, the question only remains of continuing the business efficiently.