R Balakrishnan
A Bad Policy

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Promoters tank up on preferential allotments in Sistema Shyam

Promoters of various companies have been known to pamper themselves by allotting preferential shares at prices significantly lower than prevailing market prices. With equity markets enjoying a solid run, greedy promoters seek to make a killing by allotting shares of the company to themselves at a steep discount, while selling existing holdings at an enormous profit.

In much the same manner, promoters of Sistema Shyam Teleservices, a mobile service provider, are looking to cash in on the current boom, at the cost of minority shareholders of the company. Recently, the Department of Telecom (DoT) gave its nod to the Russian government bid to pick up a 20% stake in the service provider for an estimated Rs3,200 crore. Sistema Shyam has said it could subscribe ‘‘fresh equity shares of nominal value of Rs 10 each at the rate of Rs 49.31 per share approximately for an investment of up to $676 million.” This will come as a rude shock to the minority shareholders of the company (forming 2.5% of total shareholding), who will be left watching from the sidelines as the promoters make a quick buck in the secondary markets. The company has called for an extra-ordinary general meeting (EGM) on 10 December 2009, for discussion of the proposal.
 
Although SEBI had in 1994 tightened rules for preferential allotment to deter promoters from taking unjust advantage at the cost of minority shareholders, promoters continue to find ways to manipulate the system to their benefit. Although such allotments are completely legal and within the framework of SEBI guidelines, they are still unfair to the minority shareholders of the company.
 
Sistema Shyam offers its mobile telephony services under the MTS brand name in the country. Russian telecom giant Sistema has a 74% stake in the joint venture with Indian based Shyam Telecom, which has more than 2 million fixed-line and mobile subscribers in seven circles of the country.
 
Interestingly, Sistema was looking at merging Sistema Shyam with its main asset and top Russian mobile operator, MTS, earlier this year. The decision to merge the Indian entity was to be based on its capability to deliver appropriate returns.
–Sanket Dhanorkar

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Corporate malfeasance of the highest order

Goyal Financials India flouts SEBI takeover norms by selling stake internally; the company has failed to submit notices and annual reports to members since 2005

The management of a little-known company, Goyal Financials India Ltd, apparently changed hands in 2008, with promoter and previous managing director Arun Goyal selling his stake in the company to present managing director Sanjay Savani. This act has been carried out without complying with SEBI takeover regulations and without providing any exit opportunity for other shareholders.

Trading in the company’s scrip on the BSE has been suspended since 2001.
The company, now rechristened as M/s GFL Financials (India) Ltd, has not sent annual reports or notices of any general body meetings to its shareholders since 2005. The company auditor, Mehul and Associates, has been turning a blind eye to the deplorable standards of corporate governance maintained by the company.

It has effectively given false certificate of corporate governance for the past three years. To top it all, the company’s 2007 annual report was signed by an individual as director of the firm, when actually she had resigned from the post much earlier.

The new management has also passed void resolutions to shift the registered office of the company from Madhya Pradesh to Daman without giving notice of EGM held on 15 May 2009. Apparently, the result of a postal ballot filed with the BSE and Registrar for shifting the office is also a doctored one.

A complaint has been filed with SEBI seeking its intervention and investigation into the company’s affairs. — Sanket Dhanorkar

 

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