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Monday, July 16, 2018

‘Shareholders can’t question policies if firm makes full disclosure in filing’

Sebi clarifies matter post UK-based TCI issuing warning to CIL over pricing policy

Written by Surabhi | New Delhi | Published: May 21, 2012 1:19:21 am

Even as minority shareholders become increasingly active to protect their returns on investments like in the case of The Children’s Investment Fund (TCI) writing against state-run Coal India’s pricing policy,market regulator Securities and Exchange Board of India (Sebi) believes that a listed entity cannot be taken to task by its shareholders as long as it makes a full disclosure of its risks and returns in regulatory filings.

Parliament papers suggest that there are over 30 public sector enterprises including Bharat Heavy Electricals Ltd,Nalco,ONGC Ltd and Rural Electrification Corporation that have minority foreign shareholders who can question government policies that are followed by these firms.

“Coal India Ltd (CIL) made full disclosures in its offer documents as well as regulatory filings of risk factors including its coal pricing policy. We are satisfied as long as this was done. Investors who invested in the IPO were fully aware of this factor,” said a Sebi official.

The UK-based TCI had recently warned that it could take CIL to court as the firm’s minority shareholders are being abused by mandating the public sector unit to control its prices. Though TCI holds less than 2 per cent shares in the world’s largest coal miner,its notice has shaken the government which mandates terms to CIL for ensuring fuel supply to power producers. Under a Presidential order,the government recently directed CIL to sign fuel supply agreements with power plants.

For instance,state-run Container Corporation of India,which till recently had a monopoly over running container trains in the country has over 7 foreign minority shareholders,according to regulatory filings with the Bombay Stock Exchange (BSE) as on March 2012. These include Luxembourg-based Matthews Pacific Tiger Fund,which holds as much as 2.41 per cent of shares in the PSU and the US-based SmallCap World Fund Inc.

Similarly,Franklin Templeton Investment Fund,headquartered in California,holds 1.06 per cent shares in state-run ONGC Ltd,which has been selling petrol and diesel at government-controlled subsidised prices to state-run oil marketing firms.

Officials believe that if more dominant shareholders do not have issues with the management and operations of a listed company,then minority shareholders should also be comfortable with them. “If 90 per cent of shareholders are willing to take a hit on their profits,then why should a single shareholder bring up the issue. In such a case,it should desist from investing in the firm,” said a top government official involved in primary market operations.

But even though PSUs may be holding rich natural resources and have a dominant role in their sectors,their attractiveness to investors seems to be on the wane. In the financial year 2011-12,the PSU index at the BSE fell by 18.4 per cent while the Sensex lost 10.5 per cent.

Also,6 PSUs that form a part of Sensex lost their market cap by 14.5 per cent in FY’12,the remaining 24 companies however lost only 6.9 per cent.

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