At a stormy annual general meeting on Friday, the FIs and a section of the shareholders forced the company management to amend nearly all the crucial resolutions relating to the equity restructuring scheme, the extent of funding of the proposed rights issue by group company Escorts Finance Ltd, investments in other companies and the increase in the authorised equity capital.
The taxation implication of the scheme on the company as well as the share-holders.With the FIs and a section of shareholders adopting a tough posture at the AGM on the equity restructuring scheme, the resolutionswere cleared only after an amendment that prior approval of FIs is necessary for their implementation.
Significantly, the FIs made the company amend another resolution, which in effect means that Escorts can subscribe to only its rights entitlement (38.19 lakh equity shares) in the proposed rights issue of Escorts Finance Ltd. The FIs rejected the resolution pertaining to subscription to an additional amount of 1.44 crore equity shares, which was over the entitlement.
Sources said that the company's management would be meeting the institutions next week in Mumbai to discuss the proposals.
FI sources said, "The scheme looks good at the outset", but has to be studied in detail before arriving at any decision. The FIs feel that a buyback proposal may have been "more transparent", instead of the company's innovative scheme.
The company could have gone for an enabling resolution on buyback pending the government's clearance if required. "But they have avoided the buyback route because of its liquidityposition", quipped an institutional source.
A section of the company's shareholders also expressed their reservation at the AGM about the equity restructuring scheme saying that they are getting better returns on investing in institutional bonds. They also felt that the scheme should not be made mandatory. "It is an ill-advised move and we will not let it happen," a shareholder added.
INSIGHT
Alternative to buyback flops
On the face of it, the reduction in equity coupled with the issue of cumulative redeemable preference shares -- other conditions remaining the same -- would improve the return to the shareholder. The earning per share would get a boost and CRPS would give an assured return, unlike the dividend on equity which might fluctuate. The trouble is that the controlling interest has not been able to convince the shareholders led by FIs about its objectives. The FIs prefer the buyback route -- if and when permitted -- and the shareholders have left the issue to be decided bythe FIs.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
Printer-friendly page
