Why Holcim-Ambuja deal is a milestone – Mint Editorial


The below article by Shriram Subramanian, founder and MD of InGovern Research Services, was published in editorial page of Mint on July 29th, 2013:

The Holcim-Ambuja transaction would be a true test of the voice of the minority shareholder and a test case for the market watchdog SEBI. For the first time after the revised SEBI guidelines on Schemes of Arrangement involving promoters; would a contentious issue be decided solely by minority shareholders. For the first time in Indian capital market history, promoters would not have any say in the voting of the proposal.

With the eminent independent directors on the Board of Ambuja Cements acting as yes men and the Board of Directors unanimously endorsing the transaction, it is left to institutional investors to voice concerns and vote against the transaction. As of June 30, 2013, institutional investors own 38.94% and non-institutional investors own 10.51% in Ambuja Cements Ltd.

Historically, SEBI had made several efforts to monitor scheme of arrangements undertaken by listed entities, including introduction of clauses 24(f), 24(g) and 24(i) in the Listing Agreement. However, SEBI played a limited role in approval of such schemes and was only involved at the time of granting exemption under Rule 19(2)(b) of the SCRR, after High Court approval of the Scheme. Since SEBI was not involved in the initial stages of the Scheme, listed companies were making inadequate disclosures and undertaking schemes of arrangement which were to the detriment of the minority shareholders. To address this concern, SEBI issued a circular on February 04, 2013, requiring listed companies to undertake stringent compliances as listed in the circular, while undertaking a scheme of arrangement.

As per the SEBI circular dated February 04, 2013, and the subsequent change in circular dated May 21, 2013, all schemes of arrangement involving promoters have to be put up for comments by SEBI and Stock Exchanges. Stock Exchanges are required to forward their “Objection”/”No Objection” letter on the draft Scheme to SEBI and subsequently on receipt of comments from SEBI, stock exchanges are required to issue the “Observation Letter” to the listed company after suitably incorporating the comments received from SEBI. The company will also have to submit a “Complaints Report” detailing all the complaints received by it, and resolution if any. The company will have to attach the “Complaints Report” along with the postal ballot notice sent to shareholders for voting on the proposal.

Only after receipt of “Observation Letter” from Stock Exchanges can the Company apply to the Court for sanctioning the Scheme. But there is still no clarity on whether SEBI can enforce the Company to revise the Scheme of Arrangement once the High Court has approved it. However, minority investors of the Company should write to SEBI and the Stock Exchanges opposing this transaction. Minority shareholders will have to hope that SEBI will provide adverse comments on the Scheme.

SEBI has also made it mandatory for companies to put the Scheme of Arrangement for shareholder approval through a postal ballot with e-voting. In the postal ballot, majority of the minority shareholders will have to vote in favour of the Scheme for it to pass muster. So, at least 51% of the minority shareholders voting would need to vote FOR the proposal.

The e-voting mechanism is truly democratic with one-share getting one-vote. The archaic system of voting by show of hands should be done away with. Even in a court-convened meeting, while it is based on ballot, the need for physical presence during the CCM was a deterrent to wider investor participation. The e-voting mechanism ensures participation by investors from all parts of the world. Additionally, the cost of e-voting is negligible for the investor.

Holcim, as promoters, do not get to vote. For the first time in Indian capital markets would the minority investor be powerful.


The article can also be read from this link: Live Mint – July 29 2013