Minority mistreatment

The mistreatment of minority shareholders of Rayban Sun Optics India Ltd is an ideal case study on the extent to which companies will go to deprive minority shareholders from getting a fair exit price.

The mistreatment of minority shareholders of Rayban Sun Optics India Ltd is an ideal case study on the extent to which companies will go to deprive minority shareholders from getting a fair exit price. The issue has been festering for seven years, when Sebi first ordered Luxottica, the current parent company, to make an open offer for acquiring 20 per cent of the minority shares. Luxottica contested the order and dragged the issue all the way to the Supreme Court, which also backed Sebi8217;s order and asked the company to make an open offer. Although the company has complied, the minority investors are still at the losing end. They have been deprived of any capital appreciation in an unprecedented four-year bull run and the stock trades at the same price it did seven years ago. In the intervening period, it did not declare a single divided and has steadily accumulated cash and depressed returns. Its market capitalisation is Rs 204 crore and it has Rs 63 crore in its balance sheet. Investors say the ultimate blow is the acquisition of a 8216;no objection8217; certificate from Rayban to set up a wholly owned subsidiary to distribute and sell non-Rayban products. What is worse, the listed entity loses its exclusivity over the Rayban brand at the end of five years. This means that anyone who chooses not to tender the shares may end up with a dud investment that has not even declared dividends. At a time when large industry groups are trying to delist all their group companies, the Luxottica story paints a depressing picture of how far companies will go to get rid of minority investors.

The flip side

There is no public debate over this issue, but the fact that minority investor activism forced DLF Ltd to cough up an unprecedented Rs 1,300 crore worth of shares to investors who clung on to their holding even after the shares were delisted, has sent tremors through corporate India. Last week, informed sources said that the Essar group8217;s investment bankers were warning it against any over-zealous attempt to suppress the exit price that would have to be paid to minority investors. The group, whose shares have been languishing on the bourses for over a decade, wants to delist from the Indian markets and get rid of the minority investors just when the prices had begun to look up and investors were looking forward to dividends and more capital appreciation. Meanwhile, the Sebi board postponed its plans to tinker with the delisting rules until its next board meeting. Its original proposal was unanimously opposed by investor groups as being against the interest of minority investors, especially the move to scrap reverse book-building as the price discovery process for companies that wish to delist their shares.

False scare

The Indian capital market, we discovered last week, is no longer immune to turbulence or panic in the international market. Consequently, one would expect large Indian investors to keep an eye on international developments to avoid nasty surprises; unfortunately they don8217;t. Some smart market operators used this fact to engineer a panic in the last half hour of trading on Friday, sending an already weak Sensex crashing another 150 odd points. Around 3 pm, a television channel began airing what it claimed was 8216;breaking news8217; on a US insider trading scandal and a SEC Securities Exchange Commission indictment of a husband-wife team and officials of several top brokerage houses Morgan Stanley 038; Co, UBS Securities LLC, Banc of America Securities. In fact, the SEC had officially released its findings and the information was available on wire services and Internet websites since morning. Yet, a powerful bear group used the television report to create panic by suggesting that the scam would cause US stock prices to stumble again, triggering a domino effect across world markets again. This was clearly untrue. US markets later opened steady but subdued, but some bear operators obviously made a lot of money. Maybe Sebi8217;s integrated surveillance system will throw up some details.

Ulip protest

In an unusual development, an outfit calling itself the Centre for Corporate Responsibility CCR, which is apparently an 8220;initiative for securing rightful behaviour of the corporate citizens8221;, has launched a strong attack against unit-linked insurance plans 8212; or Ulips. While the investment benefits of Ulips have indeed been in question for sometime, this group alleges that they are 8220;promoting money laundering and are a hotbed of false-selling8221;. CCR8217;s key allegation, in a press release, is that Ulip agents, or advisors, collect cash, deposit it into their own accounts and issue cheques or drafts to fund the policies of those handing over black money. CCR alleges that some banks too have offered drafts against cash received. While CCR has not backed its allegations with specific evidence or names, it has dashed off letters to the finance ministry, Reserve Bank of India and the insurance regulator to initiate action. This is indeed a new twist to the Ulip issue.