If the Indian industry wants a bailout and an economic stimulus and lobbies as a group, can it remain silent about its members' over-opportunistic actions to take advantage of the situation?
Remember, the COVID-19 calamity is relatively recent; but investors and savers have been badly hit by dodgy business practices and corporate scams in the past couple of years. The list of high-profile corporates who have decimated investor wealth is long – Infrastructure Leasing & Financial Services
, Yes Bank
, innumerable names in the realty and finance sectors led by DHFL
and HDIL, the latter destroying PMC (Punjab and Maharashtra Cooperative) Bank in the process of going under. Every one of these has been a celebrated member of our large industry associations/lobby groups by sponsoring their many public programmes.
Consequently, industry associations, that lobby incessantly for concessions, never censure scams, dishonest deals or opportunistic actions of their members.
The context for this is the news that Anil Agarwal, the scrap-dealer turned billionaire industrialist, is capitalising on market distress and investors’ anxiety about a looming recession, to take his Indian company, Vedanta Ltd, private. He has announced plans to buy out public shareholders at a steep discount to book value. Vedanta promoters hold a 50.14% stake and have announced plans to buy out the remaining 48.94 % shareholding at a floor price of Rs87.50. Although the price was at a 9.9% premium to closing market price on 11th May (Rs79.6), when the deal was announced, it is a steep discount to its book value of Rs177 and the 52-week high of Rs180.
Fortunately, the hard-fought reverse-book building process remains in place, despite corporate pressure to scrap it and that will determine the eventual offer price. Under this, bids from minority shareholders help determine the exit price in what is called reverse-book building. The company needs to buy back just over 25% of the public shareholding to take its stake over 75% after which it can be delisted. Investors may get something better than the floor price, but it would be wrong for shareholders to assume that the deal will fall through.
A board meeting of Vedanta is planned on 18th May to decide on the delisting after perusing a due diligence report from its merchant bankers. Will anyone from its glittering board of directors
, which includes former chairman of Securities and Exchange Board of India (SEBI) UK Sinha, show the spunk to object? We will know soon enough.
It is important to remember that Vedanta Plc, the group parent company, also went private in 2018 amidst controversy. The group has always cultivated powerful influencers in government and had close links
with former finance minister P Chidambaram who has been a director and legal advisor before becoming the finance minister. Many of Vedanta’s controversial deals went through under his watch.
The global rating agency, Standard & Poor’s (S&P) has said delisting of the Indian unit will improve the group’s corporate structure, credit profile and refinancing options. It also says that it may even enhance the rating of the global mining, oil and gas conglomerate. S&P says, “Successful privatization of Vedanta would improve Vedanta Resources' access to the subsidiary's cash flows. This will be due to more efficient dividend upstreaming (compared to about 50 per cent that is currently paid to minority shareholders).” Ironically, the Indian company has been paying good dividends because the parent company needs the money to service its debt!
So, the reason for getting rid of minority shareholders when a global recession is looming is clear and is endorsed by the rating agency that is paid by the company. But independent directors on the Indian company are also obliged to look after the interest of public shareholders, who, in this case, account for nearly 50% of the shareholding. Will corporate greed and opportunism win?
Scores of companies have delisted from the Exchanges in the past decade. Many of these systematically got rid of minority investors by doing multiple buyouts to raise promoter holding past 90% and then threw out the rest of the shareholders by mailing them a cheque. Their stratagems succeeded because the market regulator, SEBI
, allowed it and Indian courts are too slow and expensive to deliver justice to minority investors/depositors anymore.
Vedanta is clearly looking to benefit by buying out investors at a low price and riding out the forthcoming recession without the compliances and disclosures required by a publicly listed company. It is worth recollecting that the realty major DLF had tried this dubious strategy
DLF had delisted in 2003 during a prolonged economic downturn and tried to re-list shares at a huge premium in 2006, without taking on board even the 0.5% investors who held on, despite the delisting! SEBI permitted DLF to go ahead with its public issue in 2007 and after a seven year investigation barred
it from accessing the capital market in 2014.
That order was controversially overturned
by the appellate tribunal in 2015 and is reportedly pending before the Supreme Court. As always, investors suffered; but DLF, which was being touted by some investment ‘experts’ as the next Infosys, never recovered its reputation and has indulged in other manipulative
deals in the interim.
Sterlite/Vedanta, as a group, is also a habitual offender. Or, to use the word of IPS officer Amitabh Gupta, who cleared a lock-down holiday for the fugitive Wadhavans in Mahabaleshwar, Vedanta has a ‘proclivity
’ for anti investor, anti-environment actions. I have been documenting this for over 25 years. Read on to see how this group has weathered several controversies and continued to grow.
* In 1998, when Harshad Mehta, a fallen idol and the main accused in the securities scam of 1992, was looking to make a comeback
, Anil Agarwal’s Sterlite was among the three stocks that he brazenly tried to manipulate and take to new highs. The investigation unearthed links
with the promoter group. The other two were Videocon and BPL.
* In 2012, when P Chidambaram was the finance minister, Vednata courted huge controversy over the formation of Sesa Sterlite on terms
that would help manage the debt of Vedanta Resources plc. The criticism by proxy advisors made no difference. The company splurged big sums of money on a PR blitz to promote
its social work and silence critics, activists and civil society.
* In 2018, its copper smelter at Thoothukudi in Tamil Nadu was shut after 13 people died
in police firing during protests. This was not the first time there was problem here. There was another well-reported incident in the 1990s. The plant remains shut today.
But none of this stopped Mr Agarwal’s growth. He is now a globally known billionaire. The Vedanta stock price in India has jumped since it announced plans to delist. Many investors seem to believe that institutional investors, such as Life Insurance Corporation (LIC) and mutual funds, will force a reversal of the decision.
It is possible that the low floor price is part of a plan and will be revised upward to create the fiction of an investor victory, while the dividend-paying company goes ahead and delists. Anil Agarwal’s track record suggests that he is unlikely to have made the announcement without preparing the ground and being fully prepared to ride out any controversy.
His meteoric growth, especially through acquisitions in India and abroad, has never been hobbled, despite the controversies at every stage. Oil and mining are extremely exploitative and powerful businesses which need formidable political linkages through donations
, even in violation of stringent rules dictating foreign contributions. It will be interesting to see if minority shareholders can successfully fight Vedanta’s attempt to delist the company.