The Children?s Investment Fund Management (TCI) confirmed on Thursday that it had sought R1,500 crore in compensation from the board of Coal India (CIL) for allegedly under-pricing coal that resulted in revenue losses running into crores. The UK-based fund has already filed a petition against the miner in the Calcutta High Court, the first foreign institutional shareholder to turn seriously activist.
?TCI is effectively seeking compensation close to R1,500 crore as we own close to 1% (in Coal India),? said Oscar Veldhuijzen, partner, TCI, in an emailed response to FE. ?This is a landmark case as we are suing the board of Coal India on a personal level, which would bankrupt them, given that the opportunity losses are R2,15,250 crore pre-tax or R1,50,000 crore post-tax,? he added.
According to the London-based partner, ?The board will be liable for the full R2,15,250 crore to all shareholders? and the government, which owns 90% of the company, ?will be the biggest beneficiary?.
The CIL stock on Thursday closed at R59.35 on the BSE, up 1.65%, indicating a market capitalisation of R2.26 lakh crore. Since January, the stock has gained 19.4%, slightly underperforming the Sensex which has put on 21.6%. The miner reported revenues of R62,415 crore in 2011-12 and profit after tax of R14,788 crore. Profit before taxes and exceptionals was R21,254 crore.
In the lawsuit filed last week, TCI made the government of India also a party for its ?improper exertion of pressure on the company as a majority shareholder?. The government holds a 90% stake in the miner while institutional investor holds 1.01%.
According to TCI, the lawsuit was filed against the directors of CIL for breach of their fiduciary duties and for failing to perform their functions ?with adequate care and skill?. TCI has been persuading the ministry of coal for the last three months to increase the price of coal and to supply 100% washed coal to reduce pollution.
Incidentally, Coal India had increased prices of thermal coal in December 2011, which, according to TCI, was a positive step in bringing coal prices on par with international prices. The coal ministry, however, directed CIL to roll back the price increase and accordingly, CIL reversed the price hike on January 31, 2012.
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. It says the January revision in the price is also illegal, being a direct consequence of the illegal and invalid instructions of the coal ministry.
TCI is of the view that the whole system of fuel supply agreements (FSAs) should be scrapped and a natural resource like coal should be auctioned rather than given through FSAs.