We believe that the directors of CIL are in breach of their fiduciary duties (including their duty to act in the best interests of all shareholders) by hoarding an absurd amount of cash that is far above any realistic business needs, stated a letter by TCI partner Oscar Veldhuijzen.
According to the London-based institutional investor, CIL has close to R65,000 crore of cash, which is equivalent to 30% of the company's market capitalisation. This proves a lack of capital discipline, states the letter.
TCI further adds that inaction on the part of the board of directors is the prime reason for the company failing to deliver returns to the shareholders ever since the PSU was listed on the bourses in November 2010. Interestingly, the stock is down around 1% since listing.
TCI, in its letter, has said that CIL has the capacity to, and should, pay out 100% of its net profits in dividends and at least R30 per share starting this fiscal year.
TCI is of the view that CILs cash balance should be used for higher dividends as well as share buybacks and, even if CIL pays out 100% of profits in dividends, there is ample room for buybacks and/or special dividends.
TCI has already filed a petition in the Kolkata High Court, seeking compensation of R1,500 crore from the board of CIL for alleged under-pricing of coal that led to revenue losses running into crores. TCI has argued that coal prices are completely de-regulated and the coal ministry does not have legal authority to interfere with the discretion with CIL, which it has been doing on a regular basis.