Corporates in Cross Roads of Candour in Communication
How earnest the promoter-dominated companies are in making comprehensive, clear and candid communication to minority shareholders and the market at large?
 
The article looks at three recent instances from Chennai, where companies typically pride themselves on being law-abiding and compliant! This is especially true for companies from some of the traditional stables with a certain, particularly proud pedigree.

No doubt, the compliance culture in certain geographies in the country is different from what it is in certain other locations. However, is compliance to the strict letter of the law the end goal of good corporate governance or should the corporates strive in addition for open and understandable communication to those sections of the shareholders who are less privileged, being outsiders with no access to private information?

The first is the case of Sundaram Clayton Ltd, which has in its published first-quarter results for 2021-22 shown gains of about Rs1,500 crore from exceptional items, a figure which is in many multiples of its operating income.

A prominent advertisement that catches the eye of anyone even turning the pages, sees very little description for the cause of it. It is just the figure that rivets one's attention, which otherwise would be overlooked and might not have caught the attention of the writer.

Naturally curious, when the website of the company was checked, it thankfully demystifies the issue, stating that the amount pertains to the sale of a significant stake in its subsidiary, TVS Motors Ltd.

From a strictly legal angle, the advertisement, when read with the detailed information published to the stock exchanges, is compliant with the letter of the law. But, it certainly makes one wonder about the purpose of the newspaper advertisement (which does not come free) if it lacks the clarity palpable on the website of the company.

But the more critical question is: Why the sudden decision to raise this amount of cash, especially by selling shares in a strategic subsidiary? What does the company intend doing with the cash?

Wouldn't the board of directors, who approved the sale, have looked into the reason for the action? The matter raises more serious issues of governance.

However, it is reasonable to give the benefit of doubt to the board and only assume that what is missed out is the communication to the minority shareholders and to the market at large. This is a major sum that perhaps is intended for a major corporate action like a buyback of shares.

Information is also out in the public domain that companies in the said group are part of a family settlement and the raising of such a significant sum fuels the speculation that there may be payouts as part of this deal.

The next is the instance of a clutch of companies named in a newspaper article buying shares of Brakes India Pvt Ltd, arising out of a divestment of 49% held by the foreign partner of Brakes India P Ltd.

Two out of the four companies mentioned, namely, Sundaram Finance Holdings Ltd and IMPAL Ltd, are listed on the stock exchanges. There is no mention of the exact amount involved in buying the shares of Brakes India P Ltd.

However, another news item indicates a Rs70 crore outlay by IMPAL to buy about a 1.5% stake in Brakes India P Ltd.

This arithmetically translates to about Rs2,300 crore for the 49% stake. The amount is by no means small, given the overall asset size of all the companies involved.

Even a Rs70 crore investment by IMPAL in a private company requires explanation as the yield potential is quite low. Why would a listed company that is essentially into trading make such an investment of a statistically insignificant stake in an illiquid instrument?

Do the public minority shareholders deserve to know more than what appears in the media?

Of course, there is a 47.5% balance to be accounted for. Is there yet another listed company picking up a part of this?

The third may appear a little trivial but really is not. Sundaram Finance has held its annual general meetings (AGMs) in the past few years before the end of July. Its board had approved audited annual results which was communicated to the exchanges on 28th May.

However, there is no communication to the shareholders on the holding of the AGM till today, nor does the website of the company give the full annual report for the year ended 31 March 2021. Isn't it strange that there has been no update from the company on the reason for the unusual delay in holding the AGM? Is this not poor shareholder service?

Yudhishthira, the eldest of the Pandavas, was known to always speak the truth almost except perhaps when his or his near and dear ones' interest was at stake!! These companies are the Yudhishthiras of the corporate Yuga!

 
(Ranganathan V is a CA and CS. He has over 43 years of experience in the corporate sector and in consultancy. For 17 years he worked as Director and Partner in Ernst & Young LLP and three years as senior advisor post-retirement handling the task of building the Chennai and Hyderabad practice of E&Y in tax and regulatory space. Currently, he serves as an independent director on the board of four companies.)
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