Low holding in state-run firms alerts Modi govt to hostile takeovers

The concern is of aggressive buying by non-promoters, surpassing the stake held by the government

Some of the Gujarat government's best-known companies have less than half their equity held by the state, raising concern on the latter becoming a minority shareholder.

Recently, state government-run companies were eagerly buying shares of Gujarat Alkalies and Chemicals (GACL), the caustic soda maker in which the government's stake is now only 41 per cent. This was aimed at countering the spiralling stake of Lok Prakashan Ltd, owner of the largest-selling Gujarati daily, Gujarat Samachar, in GACL.

As it happens, of the six blue-chip, listed companies of the state government, its holding in three others is similarly vulnerable. The concern is of aggressive buying by non-promoters in these companies, surpassing the stake held by the government. These are Gujarat Narmada Valley Fertilizers Company Ltd (GNFC), Gujarat State Fertilizers and Chemicals Ltd (GSFC) and Gujarat State Petronet Ltd (GSPL).

"Promoter and promoter group holding in GNFC is around 41 per cent, while that in GSFC and GSPL is around 37 per cent each," said an equity analyst at a Mumbai-based brokerage.

The high court of Gujarat had in March 2011 ruled that GSFC and GNFC could not be seen as government companies. Since the state's holding was less than 51 per cent in these, they were termed state-supported joint sector companies, not state-owned companies. Any government-related decision for these companies had to be approved by the shareholders at its annual general body meeting, the HC had observed.

"For a state venture or a central public sector unit, 51 per cent should be the threshold for promoter holding. If a private group of investors acquires higher stakes in these companies, they can claim the management control, since these companies are not purely PSUs," said Kishor Ostwal, chairman, CNI Research.

According to industry insiders, the Gujarat government's move to buy bulk shares of GACL through its subsidiaries such as Gujarat Industrial Development Corporation, Gujarat Mineral Development Corporation and GNFC through open market purchase was an example of its worry over the mounting stake of a private group.

As on December 2012, the Gujarat government through its group companies held 36.72 per cent in GACL. Then, Lok Prakashan Ltd resorted to aggressive buying of GACL stake, from 12.39 per cent to around 25 per cent by February 2013. Promoter holding in GACL has remained stable at 36.72 per cent for five years, while Lok Prakashan has been progressively increasing its stake, which was just 1.85 per cent in March 2009. However, industry insiders maintained there were bleak chances of a hostile takeover, especially of a state-owned company. "In this country, hostile takeovers are not easy. Especially, nobody would dare to make a hostile bid for a state-owned company, even if it has a lesser promoter holding of government," said G Chokkalingam, executive director, Centrum Wealth Management.

Adding: "In the case of Gujarat PSUs, domestic institutional investors hold a good amount of stake in these companies. In a possible hostile bid, these DIIs generally go along with the government," he said. The state government's action in GACL was a positive development for minority stakeholders, he felt.