| Redefinition of ' control' on Cabinet's agenda today |
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New Delhi, 31 July Just days after the government approved the Jet- Etihad airline deal, it is set to change the definition of control in the foreign direct investment (FDI) policy. The new definition will seek to give more teeth to shareholder agreements or voting agreements; it would apply with prospective effect. The new definition, which the Cabinet Committee on Economic Affairs is expected to approve on Thursday, will replace the existing one under the FDI policy, thereby aligning it with the Companies Bill and the view of the Securities and Exchange Board of India. After cabinet approval, the Reserve Bank of India will notify the new definition and repeal the earlier notification. The cabinet note under discussion defines 'control' as " the right to appoint a majority of the directors or to control the management or policy decisions, including by virtue of their shareholding or management rights or shareholder agreements or voting agreements", sources said. This is from the final note prepared by the department of policy and promotion and circulated to the Planning Commission, department of economic affairs, ministry of corporate affairs (MCA) and department of legal affairs, among others. Sources said the new definition would apply prospectively from the date of notification of the new Press Note. In the interim period, the present definition of ' control' as given in the FDI policy, will be valid. In the present FDI policy, acompany is said to be controlled by an Indian resident if the Indian investor holds more than 51 per cent stake and can appoint the majority directors. On calculation of FDI is concerned, under the proposed new rules, an Indian company will be considered a foreign entity if the majority stake is held by foreign investors or is foreign- controlled. Any investment by such a company will also be considered foreign investment. MCA has not responded to the cabinet note despite repeated reminders. It is expected to provide its comments during the meeting. The new definition, sources said, will help in " checking entry of indirect foreign investments into those sectors where there are sectoral caps". CHANGES LIKELY IN FDI POLICY Definition of MSME to be expanded In a bid to lure international retailers, the government plans to revise the definition of micro, small and medium enterprises ( MSME) and allow retail chains to procure from them even if they exceed investment of $ 2 million in plant and machinery. Currently, the MSME definition refers to an investment threshold of $1 million. The move is likely to come up in the Cabinet Committee on Economic Affairs ( CCEA) meeting on Thursday. The multi- brand foreign direct investment ( FDI) policy states that retailers must purchase 30 per cent of the value of procurement of manufacture and processed products from MSMEs. It also states that at any point, if the MSME exceeds the valuation, it will not be called a ' small industry' anymore and will not get any sectorspecific benefits. That is about to change, if the Cabinet approves the revised definition. An official in the Department of Industrial Policy & Promotion ( DIPP) said the government may also announce easing of norms for back- end infrastructure investment. Ever since the policy got notified in September 2012, retailers were not clear whether 50 per cent investment towards back- end infrastructure would have to be made from the mandatory minimum initial investment of $ 100 million or from the total amount that will be brought in by the investors subsequently. Back- end infrastructure refers to packaging, logistics, storage and ware- house among others. The tweaked policy is likely to state that 50 per cent investment in back- end infrastructure will be "restricted only to the first tranche of $ 100 million, while subsequent investments into back- end will be decided by the retailer", said the official. However, the Cabinet note prepared by DIPP does not mention whether a foreign retailer must invest to create new infrastructure or if they could put money in the existing back- end infrastructure of an Indian partner. Also, retailers will now be allowed to open stores in all states that have agreed to implement FDI in multibrand retail, even if such states do not have cities of more than one million population. SURAJEET DASGUPTA & NAYANIMA BASU |
| Proxy advisories no longer a bit player |
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New Delhi/ Mumbai, 31 July In an unprecedented move, the top management of Holcim, the Swiss cement major, has reached out to the proxy advisory community to address their concerns on its restructuring plan. This is a boost for the fledgling proxy advisory movement in India. It is the first occasion when a company has taken a structured move to address this constituency. On July 24, the board of directors of Ambuja Cements, aHolcim subsidiary, unanimously approved a proposal wherein it would first acquire a 24 per cent stake in Holcim India from Holderind Investments Ltd, Mauritius, for ₹ 3,500 crore in cash, followed by a merger of Holcim India into Ambuja. These intra- group transactions will result in Ambuja holding 50.01 per cent stake in ACC Ltd. Most analysts have downgraded both Ambuja and ACC and their scrips fells. Proxy advisory agencies criticised the move, raised several governance issues and dubbed it "anti- minority investor". The founder of one of these even called the deal a " fraud." Following this, the foreign investment bank advising on the transaction approached the proxy firms. " Through an investment bank, the company approached us for a one to one meeting to discuss the proposed restructuring. As a policy, we don't meet listed companies during the AGM ( annual general meeting) season, to avoid any potential for conflict of interest situations. However, in this particular case, SES felt it could use the interaction with the company as an opportunity to understand the transaction better and, therefore, perform a more detailed and insightful analysis for shareholders," J N Gupta, founder of SES, told Business Standard. Gupta said he did not agree to a private interaction and demanded all other proxy firms be also called. He also insisted the details of the call would not be confidential. To his surprise, all conditions were readily agreed to. Senior officials from the company and the investment banks were present during the call. Representing the company were Onne van der Weijde, the Holcim area manager for India and managing director of Ambuja Cements; G Anantharam, India vice- president, treasury & investor relations at Ambuja; Sanjeev Churiwala, chief financial officer at Ambuja, and Samuel Poletti, head, strategy and business development- India, at Ambuja/ ACC. According to reports, Polletti will be spearheading plans to bring together the operations of the two companies. Four officials from the investment bank also logged in to the call that took place on Saturday. Proxy advisory firms now reach a lot of investors and are emerging as a good way for companies to communicate with the market, said Amit Tandon, managing director (MD) of Institutional Investors Advisory Services ( IiAS). "Typically, we try and send out to the company the report we put out before it goes on the website or public domain, just to check whether they have any clarifications. In that sense, companies have been engaging with us but this time it was more structured, where they had a concall with all the proxy advisory firms and explained the transaction," he said. Shriram Subramanian, founder and MD, InGovern Research Services, said it is global practise for companies to reach out to proxy advisory firms. In some cases, proxies have even supported promoter moves. Recently, Institutional Shareholder Services ( ISS), a top proxy advisory agency, recommended that Dell shareholders vote in favor of a deal allowing the company's founder and an investment firm to buy the computer maker and take it private. Michael Dell and Silver Lake Partners have offered to buy Dell Inc for $ 13.65 a share or a total of $24.4 billion. Michael Dell believes he can turn the company around by taking it private and diversifying into niches, such as business software, data storage and consulting. But Carl Icahn, a billionaire investor and Dell's secondlargest shareholder, said he wanted Dell to remain publicly traded and boost value for shareholders by buying back $16 bn in stock. ISS backed Michael Dell's proposal and said Icahn didn't have adequate financing for his plan. Following this, Dell has raised his offer and demanded certain changes in voting rules. According to Subramanian, alot of multinational corporations are attuned to the role played by proxy firms and progressive Indian companies are now awakening to this practice. "In the past three years, many Nifty and Junior Nifty companies have been engaging with us. Globally, a lot of institutional investors like mutual funds and pension funds opt for auto voting, where the recommendations made by the proxy advisory firm are auto voted by the fund through the custodian. Earlier, voting for or voting against never mattered. But, increasingly, institutional investors are asserting their rights and voting in shareholder meetings, especially on contentious issues," Subramanian said. In latest sign, Holcim reaches out to clear air on deal, with concall among three advisory firms that raised governance issues Proxy advisory firms now reach a lot of investors and are emerging as a good way for companies to communicate with the market Issue raised: Ambuja shareholders will be hit as no cash flow generated at ACC Mgmt reply: ACC is clearly generating strong cash flow, as it is valued at 8- 9x Ebitda Will ACC now pay royalty to Ambuja ? It will continue to be paid to Holcim Couldnt you have achieved synergies in current structure? Proposed transaction allows to create the alignment through both ownership shareholding and India management structure Why not do a straight merger then? Merger requires a lot of time, takes up a lot of management bandwidth, not possible under the current structure Why are you using cash as part consideration vs. all stock? Use of cash more beneficial from minority shareholders perspective, as it reduces their dilution vs. an all- stock merger and is more EPSaccretive How long would it take for synergies to accrue? 2years post completion Any plans to merge ACC into ACL? At some point of time it can happen and is probably the next logical step but not the intent now Why ET article on July 2 related to mergerwas denied? The proposed transaction is completely different from the one published Source: SES report ADDRESSING CONCERNS |
| Just Dial IPO: Bulk of retail investors cash out |
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Mumbai, 31 July The ' safety net' option for Just Dial Ltd has been rendered potentially redundant in less than two months of listing, as only a minuscule portion of the original initial public offering ( IPO) retail applicants continue to own the shares. Following a sharp 40 per cent run- up in the share price of the company since its listing on June 5, over 95 per cent of the retail investors, who had received allotment through the IPO, have exited, said two people aware of the development. This has helped the company release a proportionate amount that it had kept in an escrow account for the purpose of safety net, freeing up nearly ₹ 80 crore. A safety net is a scheme where the company promoters assure that they will buy back shares from the retail applicants at the IPO price, if its stock falls sharply during the first six months after listing. The facility, however, can be availed of by only original IPO investors. An escrow account is one in which funds are accumulated for specific disbursements. "Since over 95 per cent of the IPO investors have exited, we have been able to release the money earmarked for safety net," said a senior official with Just Dial. Just Dial, a local search engine provider, was 'nudged' by the markets regulator, Securities and Exchange Board of India (Sebi), to offer the safety net arrangement as it was a firstofits- kind company to list on Indian bourses and also due to weak probability track record. The scrip of the company on Wednesday ended at ₹ 695.80, up 2.69 per cent on the BSE, while the benchmark Sensex ended flat at 19,345.70. The Just Dial share had a record high of ₹ 761.80 on July 9. Just Dialhad raised about ₹ 900 crore through the IPO in May by issuing shares at ₹ 530 apiece. The IPO was subscribed a little more than 10 times. Retail investors were provided an additional 10 per cent discount, with a reservation of 10 per cent of the issue size. The IPO had attracted nearly 156,000 retail applications but less than half of it got allotment— of just 25 shares each. According to BSE shareholding data, almost 70 per cent of the investors had booked profit in the first month itself. At the time of listing, there were about two million shares owned by retail investors ( holding value of less than ₹ 1 lakh), compared to just 600,000 at the end of the June quarter. Most domestic brokerages continue to remain positive on the prospects of Just Dial. Motilal Oswal has a price target of ₹ 782 on the stock, while Nirmal Bang and Destimoney Research have higher targets of ₹ 800 and ₹ 875, respectively. "With just 14.9 per cent internet penetration in India against a global average of 40 per cent, along with just three per cent of BRIC's share in internet ad spending, Indian online market is well poised to witness extraordinary growth in future. Hence, we initiate coverage on Just Dial with a 'buy' rating and a target price of ₹ 875 per share," says arecent report by Destimoney. BRIC stands for a grouping of emerging economies comprising Brazil, Russia, India and China. JUST DIAL Share price on BSE in ₹ 720 690 660 630 600 Jun 5, 2013 Jul 31 611.45 695.80 Compiled by BS Research Bureau The scrip of the company on Wednesday ended at ₹ 695.80, up 2.7 per cent, on BSE, while the benchmark Sensex ended flat at 19,345.70. Just Dial shares had seen a record high of ₹ 761.80 on July 9 |
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