The True Meaning of Equity – The Indian Context

Besides the usual meaning given in financial texts, i.e. a share in all future cash flows net of debt payments. I would like to propose another definition in the Indian context.

Basically, it would go something like, whatever the incumbent management feels like giving to its equity holders. Hence, unlike debt there is no obligation on part of the management to give its shareholders anything.

This seems to be the case with numerous incumbent managements in India. Most of these companies are majority family owned and managed and have little regards for the rights of the minority investor to receive their fair share of the future cash flows. Their motto seems to be, “Ram nam japna paraya maal apna.” Loosely translated this means what is mine in mine, what is yours is also mine.

When these companies are in need of funding they will approach the public. However, having raised the cash they will conveniently forget they have minority shareholders to pay as well.

Moral of the story, before investing in equity make sure that the management will not forget all about you once it is their turn to pay up.

Aditya International Delisting - Raw Deal to Minority Investors

Aditya International is a publicly listed company on the BSE and NSE promoted by Mr. Aditya R. Agarwal. The promoter group along with persons acting in concert hold 95.79% of the equity of the company. At the Extra Ordinary General Meeting of the company held on May 8, 2006 the promoters approved a resolution to delist the company from all Stock Exchanges. Subsequently, as per the SEBI Delisting Guidelines 2003 the company is going in for a reverse bookbuilding commencing September 18, 2006.

The floor price set for the delisting is Rs. 60 per share which is a whopping 61% discount to the estimated market value of the quoted investments held by the company which stand at approx. Rs. 155 per share. The listed investments and number of shares as per the balance sheet of the company on 31st, March 2005 are given below:

1) ASAHI INDIA SAFETY GLASS LTD 18,500
2) BALLARPUR INDUS. LTD 24
3) BANNARI AMMAN SUGARS LTD. 204,110
4) BHARAT FORGE CO. LTD 147,525
5) DALMIA CEMENT 6% NCD 32,400
6) DALMIA CEMENT (WARRANTS) 32,400
7) ELGITREAD (I) LTD 770,000
8) ESSEL PACKIN 50,000
9) GRASIMIND. LTD 55,200
10) HITECH GEAR LTD. 21,000
11) LAKSHMI MACHINES LTD 1,500
12) MADRAS CEMENT LTD. 5,850
13) MOTOR IND, CO. LTD. 6,000
14) MRP LTD. 21,000
15) RELIANCE INDUS. LTD. 75,000
16) SKF BEARINGS (INDIA) LTD. 39,980
17) SUNDRAM FASTNER 25,000
18) SUPREME IND. LTD. 31,500
19) TCS 1,509
20) TVS MOTORS CO, LTD 1,410,000

To add insult to injury, as per the delisting offer letter sent to the minority shareholders the promoter group has surreptitiously been acquiring shares of the company from since 5th August 2004 till 5 April 2006 ranging from a price of Rs. 2.93 a share to Rs. 54 a share. These purchases are an audacious violation of Regulations 11(1) & 11 (2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997 as amended till date. In addition, only certain purchases were reported to Stock Exchanges under SEBI (Insider Trading Regulations) 2002 as well as under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997.

Yet another case of SEBI not doing enough to protect the rights of minority investors.

NSIL Minority Shareholders' Association

Here is the link to the Nalwa Sons Investments Limited (NSIL) Minority Shareholders Association.

http://nsilmsa.blogspot.com/

Check it out to keep abreast of the oppression of the minority shareholders by the OP Jindal group.

Kothari Products Ltd. - Management fiddles while the Minority Investors burn !!

Kothari Products Ltd. is a highly profitable, cash rich company in the business of making pan masala and packaged drinking water. The promoter group holds more than 80% of the equity of the company. On September 20, 2005 at the AGM a special resolution was passed to voluntarily delist the company from NSE, BSE and CSE. Since then the management has not made a single move, while the share continues to be illiquid and languishes at well below its book value. Effectively, the minority investor has no avenue to exit at a fair price. And here I would like to put the emphasis on fair price. Shouldn't there be a reasonable timetable which the company must adhere to once such a resolution is passed? Will the SEBI do something about this or will one turn grey before seeing the fruits on ones investments?

Keeping the minority investor out - Sucheta Dalal's article in the Financial Express dated 28 Aug. 2006

Sucheta Dalal has written an interesting article highlighting the dubious financial practices of many well known Indian promoter groups to the detriment of the minority investor. Checkout the article at the link given below.

http://www.financialexpress.com/fe_full_story.php?content_id=138577