The Holcim-Ambuja deal, which has come under criticism from various market participants, is the latest to join the list of transactions that would have found passage difficult if the proposed Companies Bill 2012 had been cleared and implemented.
The Companies Bill, that is awaiting the clearance of the Rajya Sabha, has stringent requirements regarding related-party transactions by giving more say to the minority shareholders of the company. Such proposals can only be passed through a special resolution requiring 75% of shareholders voting in favour of it.
Further, if any shareholder of the company is involved in the deal, then such interested shareholders have to abstain from voting. Currently, the amended guidelines by the Sebi specify that scheme of arrangements (like Holcim-Ambuja) can be cleared with a simple majority of the minority shareholders.
?Since the Companies Bill proposes a tighter regime for approval of related party transactions, we see a flurry of activity, for even if a few institutions vote against the resolutions, the same would not be carried,? said P R Ramesh, senior consultant, Economic Laws Practice and a former Sebi official.
The recent deal between Holcim and Ambuja Cements has been structured in a manner wherein Ambuja will first acquire a 24% stake in Holcim India. This qualifies as a related-party transaction and would have required the company to get a special resolution passed, giving more say to the minority shareholders.
Interestingly, the recent past has seen foreign entities increasing the quantum of royalties from their Indian listed arms, which is again a related-party transaction. A wide section of market players have questioned such moves by the foreign parent company. HUL increased the royalty payment to Unilever from 1.4% of turnover to 3.15% in a phased manner by March 31, 2018. In another instance, ACC and Ambuja Cements increased the quantum of royalty to Holcim to 1% of net sales.
Incidentally, minority shareholders of ACC and Ambuja Cements had voted against the resolution seeking an increase in the royalty payment to Holcim. The resolutions, however, were approved as the promoters voted in favor of the proposal. Stock exchange data showed that more than 83% of the non-promoter institutional shareholders of Ambuja Cements voted against the resolution. Further, nearly 82% of the public shareholders also voted against the resolution. The boards of companies like Nestle India, Colgate-Palmolive, Bosch India, Timken India and BASF India have also approved an increase in royalty payments even as a large section of minority shareholders have opposed the move. The proposals, however, have been passed due to the delay in implementing the new Companies Bill.
?Once the new Companies Bill is passed and implemented, the possibility of class-action suits and greater scrutiny of related party transactions enhances disclosures and empowers minority shareholders,? says Shriram Subramanian, founder and MD, InGovern, a proxy advisory firm.