Sibal approves ‘call’ and ‘put’ options in shareholder pacts

The key change to help Sterlite close stake purchase in HZL,Balco.

Written by ENS Economic Bureau | New Delhi | Published: May 16, 2013 3:11:36 am

The key change to help Sterlite close stake purchase in HZL,Balco.

Sterlite Industries has moved one step closer to buying residual stakes in Hindustan Zinc (HZL) and Balco as the government has cleared a crucial change to the regime governing such transactions.

The country’s new law minister Kapil Sibal who took charge earlier this week has approved a proposal to include ‘call’ and ‘put’ options for companies in shareholders’ agreements.

The move comes at a time when the government hopes to raise at least Rs 14,000 crore in 2013-14 through residual stake sales in Hindustan Zinc,Balco and SUUTI.

This is apart from the Rs 40,000 crore estimated from disinvestment in public sector firms this fiscal.

An official said the changes would be notified after the law ministry’s recommendations are reviewed by the finance ministry.

The long-pending proposal of the finance ministry gives transacting companies the right to use ‘call’ and ‘put’ options that allow them to buy or sell their shares at a later date at a pre-determined price.

This was also one of the key clauses in the agreement with Sterlite Industries when it bought majority stake in Hindustan Zinc and Balco.

In 2000-01,the Anil Agarwal-controlled Sterlite had bought 51 per cent stake in Balco for Rs 551.50 crore and then in 2002-03 it bought 26 per cent stake in HZL for Rs 445 crore during the term of the NDA government.

It later invoked the ‘call’ option to acquire another 18.92 per cent in HZL for Rs 323.8 crore and currently holds 64.92 per cent stake in the firm.

But the government later held that Sterlite’s ‘call’ option is invalid and cannot be used to acquire further stake in HZL.

At that time,then Attorney General Milon Banerji had said that the country’s company law does not allow for ‘call’ and ‘put’ option to be included in shareholders’ agreements.

The move could also give more flexibility to other companies in drawing up their shareholding agreements  as it has been flagged by market regulator Securities and Exchange Board of India (Sebi) in deals including those involving Vulcan Engineering and the Vedanta-Cairn deal.

CRUCIAL CHANGES

The changes would be notified after the finance ministry reviews the law ministry’s recommendations

It has been a long-pending proposal of the finance ministry to give transacting companies the right to use ‘call’ and ‘put’ options

Doing so would allow such companies to buy and sell shares at a pre-determined price at a later date

The move is also expected to greatly aid the government’s stake sale efforts wherein it aims to raise at least R14,000 crore from three pending sales

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