Amara Raja wants to pay promoter entity upfront for 99-yr lease

Proxy firm says deal one-sided; recommends that shareholders vote against it

Industrial and automotive battery maker Amara Raja Batteries is seeking shareholder approval for a Rs 40.3 crore related-party transaction, one which governance experts fear unduly favours an entity owned by its promoters.

Amara Raja is seeking approval through a postal ballot, that ends on Friday, for entering into a lease agreement with Amara Raja Infra Pvt Ltd (ARIPL) to “take on lease land measuring 62 acres for a period of 99 years for total consideration of Rs 40.30 crore with effect from October 1”. The land is in Andhra Pradesh’s Rayalaseema region. The new lease is in the vicinity of Amara Raja’s existing premises, part of the proposed 482 acres of an industrial park being developed by ARIPL. The company has undertaken expansion for enhancing the capacity in both industrial and automotive batteries at Nunegundlapalle village, Bangarupalyam mandal, in Chittoor district.

CONTENTIOUS MOVE

• Amara Raja’s promoter entity, ARIPL, promoting an industrial park in Chittoor, Andhra Pradesh
• Amara Raja wants to lease out 62 acres on a 99-year lease for Rs 40.3 cr
• Wants to pay entire amount upfront
• Has already leased 112 acres in two tranches
• SES says company paying 33 per cent more than price paid only a month earlier
• Also, finds other contract terms are loaded against the company

These facilities have already been put up on 100 acres of land taken on a 99-year leases from ARIPL. The listed firm’s promoters, Ramachandra Galla and Jayadev Galla, are directors of ARIPL and with their relatives own all the paid-up capital.

In addition to these 100 acres, the company took another 12 acres on a long-term lease in August. The third lease, now up for approval, will take the total lease holding of Amara Raja to 174 acres or a little more than a third (36 per cent) of the total area of the industrial park. According to the terms of the latest transaction, lease consideration for the land comes to Rs 65 lakh an acre. This is 33 per cent higher than the price paid for the 12-acre parcel leased out earlier. In August, the company had sought approval for the lease deal with ARIPL at Rs 47.5 lakh an acre.

Apart from the rate, another key departure from the August deal is that in the latest proposal, the entire consideration of Rs 40.3 crore is proposed to be paid upfront to the promoter-owned private entity. In August, Amara Raja agreed to pay Rs 5.7 crore, including the cost for development of infrastructure and common facilities by ARIPL. “The cost of the land is Rs 2.10 crore payable upfront and the balance Rs 3.6 crore is towards developmental/user fee payable by the company to ARIPL in a phased manner, depending on completion of infrastructure/developmental works,” according to the notice issued then at the annual general meeting.

An email to the company from Business Standard seeking comments, sent on Tuesday to spokespersons and a subsequent reminder on Thursday, did not elicit any response.

‘Turn it down’
Proxy advisory entity Stakeholders Empowerment Services (SES ) has recommended shareholders vote against the resolution. In a detailed report, it has said: “SES finds that within a month, the rate of land has gone up from Rs 47.5 lakh/acre to Rs 65 lakh/acre, an increase of more than 33 per cent. Further payment terms have also undergone changes at the detriment of the company.”

Also noting the listed company had already taken up considerable space in the industrial park, SES questioned whether it was a case where the promoters were not finding buyers and were “making the company take the park area making upfront payments. The entire development money is also being paid up front”.

SES says it finds the terms of contract are loaded against the company and it appears the promoters are using their dominant position to push the contract through. The Amara Raja brand, says SES, is owned by the company but the promoters are using it for their own benefit.