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.