Minority shareholders don investor activism cap
19 Jun 2009, 0311 hrs IST, Apurv Gupta & Vijay Gurav, ET Bureau


MUMBAI: Investor activism has gained strength, with minority shareholders of a growing number of companies raising their voice against moves that,
they feel, are detrimental to their interest. Shree Ram Urban Infrastructure and Spanco are among companies that have recently witnessed a taste of the investor activism. Similarly, in case of Gujarat Heavy Chemicals (GHCL), retail investors have formed a forum to protect their interests.

“There was a sudden scrambling for calling EGMs to seek an approval for the warrants issue, ahead of general elections. With the sharp rally in shares after the elections, share prices are now quoting at a substantial premium to the warrant price, thus offering promoters a price advantage,” said an analyst at a leading Mumbai-based institutional brokerage.

More than 100 individual shareholders of small-cap company Shree Ram Urban Infrastructure (formerly Shree Ram Mills) recently filed a petition with the Company Law Board (CLB), challenging the company’s decision to issue 25 million convertible warrants to promoters and their associates at a low price. The shareholders felt the move was intended to help promoters raise their holdings at a low price, rather than infuse funds into the company.

Acting on the petition, the CLB restrained the company’s board from issuing warrants on preferential basis to the promoters, their friends, relatives and associates. In another example, some retail shareholders of Sanjay Dalmia-promoted GHCL came together to form a forum to protect their interest. The forum alleged that shareholders have not been offered an exit option at a price at which promoters sold their stakes in June last year.

“It would not be appropriate to comment on allegations as the matter is sub-judice,” said GHCL company secretary Bhuwneshwar Mishra. In April, Sebi barred the promoters and the top management from dealing in the stock market, after the regulator, in its preliminary investigation, found discrepancies between promoter holdings as per registrar records, and disclosures made to stock exchanges.

Some weeks ago, shareholders of Spanco protested against the company’s move to allot one crore shares to its promoters and other institutional investors. At the EGM, the shareholders demanded the allotment at Rs 50 per share, instead of Rs 35 per share as proposed by the company. The company finally allotted shares on a preferential basis at Rs 40 per share. “Sebi should only allow companies to come out with rights issues and nothing else.

Promoters try to time the market vis-a-vis price in many cases. All other instruments such as FCCBs, preferential allotments or QIPs should not be allowed as these favour promoters or large investors rather than serving the interest of minority shareholders,” says Aspi Bhesania who along with other shareholders successfully asked the promoters of Spanco to raise the conversion price.