The market leader says it plans to transfer its units to a subsidiary in which Roquette Freres will be the majority stakeholder
When, or rather, why does a winner quit? Shareholders of starch and starch derivatives giant Riddhi Siddhi Gluco Biols Limited are pondering over this question.
Riddhi Siddhi, the market leader in India and the largest exporter of starch and starch derivatives, has decided to transfer all its units to a subsidiary in which French company Roquette Freres will be the majority stakeholder.
But what prompted the company to take this decision so suddenly? The shareholders don't have a clue. They are not happy about it, and have accused the company of cheating them.
Indian Air Force group captain, MP Surange, who has a minority stake in Riddhi Siddhi, said, "The promoters of the company are in the process of selling the assets to a French company in a manner that the entire proceeds will flow into the corpus of the promoters, with very little or no benefit to the minority holders."
Some days ago, Ganpatraj Chowdhary, managing director, Riddhi Siddhi said in a television interview, "Among all the manufacturing units of Riddhi Siddhi, three of them will be tasked to the subsidiary company. Roquette will take a majority stake in this subsidiary company. The enterprise value is estimated approximately at Rs 1,250 crore." Roquette Freres, which already has a 14.96% stake in the company, will initially have the majority stake, and may then move up to a 100% stake. Mr Chowdhary said the deal would take around six to nine months to be completed.
While the management is glowing, shareholders are puzzled by the lack of communication from the company on this decision. The Riddhi Siddhi stock, which was trading at about Rs500 levels end-October has dropped to Rs350 levels now in just two months and this is giving minority shareholders sleepless nights. Now, no one knows how the valuation money will be distributed among the stakeholders.
According to a financial analyst with a reputed firm, "The move will definitely affect shareholders adversely. If there is no communication from the promoters and no indication on how the money will be distributed, there is room for confusion and suspicion. This, in turn, will affect the goodwill of the company."
Many shareholders don't understand the rationale for giving up a very profitable business. That too, when the company is the market leader with a more than 35% market share. Mr Chowdhary claimed on television, "We are confident of receiving Rs1,000 crore turnover for the current year, with the EBITDA margin of 20%. We are expecting EBITDA for the current year to be around Rs200 crore-plus."
Generally, companies that sell a majority stake in the unit use the funds for new ventures. What has Riddhi Siddhi planned? The management was not available for an answer.
Earlier last year, Dutch paints and chemicals manufacturer AkzoNobel sold its National Starch arm to American Corn Products International (CPI). Now with Roquette Freres' making a move on Riddhi Siddhi, other companies may follow.
Even experts, who are optimistic on the sector following the entry of foreign MNCs, agree that selling off a profitable business is baffling. Will Riddhi Siddhi sort out the matter with stakeholders in the coming six months? Looks unlikely.
Global cues point out to a subdued opening for the domestic market today as Wall Street closed marginally lower on Thursday on Chinese rate tightening concerns. Markets in Asia were mostly lower in early trade on Friday on speculations that China’s growth indicators would prompt policymakers hike rates further. The SGX Nifty was down 45 points at 5,677 from its previous close of 5,722.
Dish TV, ITC, Mahindra & Mahindra Finance, Edelweiss Capital, HCC, IFCI, BHEL, Indiabulls Finance, Reliance Industries and Tech Mahindra are among the companies that will announce their quarterly earnings today.
The market opened on a subdued note on Thursday on negative cues from global markets. Offloading by institutional investors pulled down the sectoral indices in early trade. The indices were range-bound, ahead of the announcement of the weekly food inflation numbers, which eased from the previous week. Select buying pushed some sectors higher. The market touched the day's low a little after noon and soon regained momentum, lifting the indices into the green. Choppy trade continued throughout the session and the benchmarks closed with modest gains.
The fall which began from 4 January 2011 seems to be losing strength. The Sensex rose 68 points to close at 19,047 while the Nifty ended 21 points up at 5,712. The market is now beginning to move in a non-directional way. Two down days will be followed by an up day and vice-versa.
The US markets closed marginally lower on Thursday as the decline across material and energy sectors came as commodities weakened on concerns over demand from China would taper down if new policy moves are announced after data showed its economy unexpectedly grew in the fourth quarter of 2010. However, earnings reports helped to trim the losses. Financials gained after a US representative Barney Frank said he’s ready to work with the Republican majority to initiate changes in a Federal Reserve proposal to cap debit-card “swipe” fees.
In economic data, the number of US workers filing initial claims for unemployment benefits fell by more than expected last week, sales of previously existing homes rose more than expected last month, and the index of leading economic indicators also improved more than expected. On the other hand, the Philadelphia Fed’s business-activity index slipped to 19.3 in January versus a 20.8 reading in December, a tad below economists’ expectations.
The Dow shed 2.49 points (0.02%) to 11,822.80. The S&P 500 slipped 1.66 points (0.13%) to 1,280.26 and the Nasdaq declined 21.07 points (0.77%) to 2,704.29.
Asian markets were mostly lower in early trade this morning as concerns about possible rate tightening moves weighed down on commodity stocks. Profit booking after the recent rise in stock prices also drove some benchmarks lower.
The Shanghai Composite was 0.04% lower, the Hang Seng fell 0.41%, the Jakarta Composite plunged 2.95%, the KLSE Composite declined 0.82%, the Nikkei 225 fell 0.87% and the Seoul Composite tanked 1.12%. On the other hand, Straits Times added 0.03% and the Taiwan Weighted gained 0.13%.
Back home, the Reserve Bank of India (RBI) on Thursday said that co-operative banks cannot give housing loans beyond 5 per cent of their total assets. Earlier, state cooperative banks and central cooperative banks were allowed to extend housing finance up to 10% of their total loans and advances. These banks, with exposure in excess of the new limits, have been asked to initiate steps to bring it down to the revised limits within six months.
The coal ministry today said it will introduce the Coal Regulatory Authority Bill in the forthcoming Budget session of Parliament. "The work on coal regulator is moving forward...We are hopeful that in this Budget session we will introduce the Coal Regulatory Bill," Union Coal Minister Sriprakash Jaiswal told reporters here. The Budget session begins on 21st February.
The proposed Coal Regulatory Authority Bill aims to regulate and conserve coal sector resources besides protecting the interests of consumers and producers. The Bill would facilitate standardised operational norms and establish benchmarks in safety standards, performance and productivity through adoption of best mining practices, reports PTI.
Mr Jaiswal, who has recently been promoted to the Cabinet rank, said guidelines and rules for the proposed competitive bidding for auction of coal blocks would also be finalised within a month and the bidding process is likely to begin from April.
"I am hopeful that within a month these rules will be finalised... And from April bidding process will start," the Minister added.
Earlier, the Coal Ministry had said that it was framing guidelines and rules for the proposed competitive bidding for auction of coal blocks.
The Parliament in August last year had passed the Mines and Minerals (Development and Regulation) Amendment Bill, 2010, which paved the way for introduction of auction through competitive bidding for allocation of coal blocks to private companies for captive use.
To encourage greater transparency, the Bill seeks to replace coal block allocation done by a government screening panel with allocation of coal blocks through auction.
At present, an inter-ministerial screening committee, which includes representatives from concerned state governments, allocates coal blocks to private firms engaged in generation of power, production of iron and steel, and some coal washeries.