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FIs succeed in blocking ACC's preferential allotment to Tatas

The Associated Cement Companies board today met in Bombay and beat a hasty retreat, when it was forced to withdraw a proposal relating to a preferential allotment of nine million naked warrants and equity shares in favour of one of the promoter groups -- the Tatas.

The extraordinary general meeting convened today passed resolutions relating to sub-division of equity shares of the company from Rs 100 to Rs 10 and increase in the authorised capital to 2.25 billion shares from 1.5 billion shares and a rights issue of Rs 1.89 billion.

The proposal for a preference issue to the Tatas met with stiff opposition from the financial institutions led by the Industrial Development Bank of India who questioned the issue of shares to the Tatas at Rs 110 (face value Rs 10), at a premium of Rs 100. However, the current market price of ACC share is in the Rs 875 to Rs 900 range.

The FIs feels the issue to the Tatas is unfair, as the company had made a rights issue to the shareholders at Rs 400 in 1995. The FIs hold a total of 20.63 per cent shareholding in ACC.

The Tatas' proposal to extend the preferential issue to all shareholders by allotting each of them a minimum of 50 warrants (entitling them to subscribe to 50 equity shares at the same price) was also withdrawn by the ACC board.

The Tatas' gesture was aimed at striking a compromise with opponents of the preferential issue who felt the issue was unfair to the shareholders.

Had the preferential issue to the Tatas sailed smoothly today, it would have increased its stake to 20 per cent from the present 14 per cent. The public holds over 50 per cent stake in ACC, insurance companies, banks and mutual funds hold 10 per cent while the FIIs have nearly 6 per cent.

The Tatas proposal needed the support of 75 per cent shareholders to be carried through. This possibility seemed unlikely as banks and other public institutions seemed to favour the stand taken by the FIs.

The FIs supported the resolution that will enable ACC to issue rights shares in the ratio 1:4 at Rs 550 million aggregating Rs 1.89 billion.

The Tatas, on their part, have maintained that the preferential issue was in conformity with the guidelines of the Securities and Exchange Board of India, which stated that the preferential offer has to be arrived at based on the higher of the average of the weekly high and low closing market price of the company's shares quoted on the stock exchange over the last six months.

Speaking at the EGM, ACC chairman Pallonji Mistry clarified that Tatas were indeed one of the original co-promoters of ACC. On the comparisons between the 1995 rights issue and the preferential issue now, he said: ''Against their (the Tatas) rights entitlement of 78,000 shares at that time (in 1995), they had applied for a much higher number of shares and were alloted 115,000 shares,'' he informed.

He observed that the equity capital after the preferential issue would rise by 5.5 per cent, while providing the company funds to the tune of Rs 1 billion.

''The investment, as proposed over the next two-three years, would result in improvement in the company's performance and help in capital restructuring,'' he added.

Shareholders, who spoke at the EGM favoured the Tatas proposal of a preferential issue of a minimum 50 warrants to all shareholders, describing it as an investor-friendly proposal.

IDBI was represented at the meeting by J N Godbole, while O P Dubey represented LIC. Tata Sons finance director N A Soonawala was also present at the EGM. All the three are directors on the board of ACC. UNI

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