Sucheta Dalal :Backdoor Buyback (14 July 2002)
Sucheta Dalal

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Backdoor Buyback (14 July 2002)  

Although the Bombay High Court has yet to decide the Sterlite Industries’ case (it attempted to buyback and delist its shares via Section 391 of the Companies Act), half a dozen companies are all set to copy it.

They have drawn up schemes of arrangement for court approval, right down to the controversial negative consent from shareholders (consent is assumed if investors do not specifically reject the scheme).

However, since the Sebi and the Department of Company Affairs objected to Sterlite’s scheme in court, the emulators have paused to reconsider. These proposals have now found their way to Sebi seeking the regulator’s ratification of their plans.

Companies obviously prefer Sec 391 to Sebi’s buyback rules, because it is easier to bypass shareholders that way. Sebi clearly needs a quick amendment to the listing rules in order to plug this backdoor buyback and protect investors’ interest.

Tata Finance troubles?

Tata Finance is struggling to recover from its financial problems even after managing director Dilip Pendse has been ousted. Last year, it announced a whopping net loss of Rs 396 crore after a Rs 325 crore provision towards exposure to its subsidiary Nishkalp Investments and other associate companies.

The Tata group also pumped in Rs 250 crore and de-subsidiarised Nishkalp. Yet, for the nine-month period ending March 2002 it has announced another Rs 117 crore loss attributed to exposure on inter-corporate deposits, for diminution in value of investments and a dividend refund to Nishkalp. The Tatas may have increased their stake to 63 per cent, but finding a strategic partner will be difficult if the company continues to lose money even after it sacked eight people for shady dealings.

Restructuring IL&FS

Last week we said that IFC Washington wants an exit from Infrastructure Leasing & Financial Services (IL&FS)—the quasi-financial institution which dabbles in a variety of diverse and often unrelated businesses.

We now learn that UTI, its largest shareholder also wants an exit, or at least to reduce its holding. It has asked IL&FS for a detailed business plan aimed at restructuring the organisation and valuing its assorted businesses and subsidiaries.

Since UTI knows that an attractive exit price will be difficult, it has offered to help IL&FS’s restructuring efforts by acquiring some related businesses, provided they are compatible and the valuation is right. Not only do UTI and IL&FS share the same chairman, but many of their businesses either overlap or are similar. Interestingly, valuing the businesses may be easy but marrying their contrasting corporate cultures may be a lot more difficult.

Cheaper to call

The controversy over how cellphone companies charge their SMS messages should alert the TRAI to how opaque these companies are, how sloppy their billing systems and how quick they are to take subscribers for a ride.

Nobody knew that outstation messages and international ones were billed differently. If the changes were recently introduced, then cell companies certainly did not bother to inform subscribers about the change before billing them. In fact, with long distance call charges having dropped dramatically, it may be cheaper to call than to painfully punch expensive SMS messages. In any case, shouldn’t TRAI, which is meant to protect consumer interest, initiate a suo moto investigation and force a refund of amounts that have been billed without informing consumers?

-- Sucheta Dalal