Falling share price of Aditya Birla singes MFs

Reliance Growth Fund lost around Rs 6.6 cr in its exposure to Aditya Birla Nuvo for the month ending August 31 while HDFC Equity Funds lost Rs 5.7 cr

Mutual funds (MFs) with exposure to Aditya Birla Nuvo and Grasim face notional losses, with the share price of Nuvo falling by 12.3 per cent since a merger between the two companies was announced last month, shows data from Value Research.

The shares of Grasim have recovered since the merger announcement but some MFs have pared their exposure to the stock.

Reliance Growth Fund lost around Rs 6.6 crore in its exposure to Aditya Birla Nuvo for the month ending August 31; HDFC Equity Funds lost Rs 5.7 crore. The merger was announced on August 12 by Aditya Birla Group chairman Kumar Mangalam Birla, and minority shareholders are not happy.

MF heads have said they will call a meeting of minority shareholders to oppose the merger. "Even we are the last and only one to vote against the proposal, we will," said the head of a large MF. Voting on the merger proposal is expected next month.

The statistics show Reliance Arbitrage Advantage Scheme and Kotak Equity Arbitrage Scheme had increased its exposure to Nuvo. Franklin India Prima Plus raised its exposure in Grasim from Rs 103 crore to Rs 150 crore (see chart).

Apart from the MFs, domestic and foreign institutional investors such as Life Insurance Corporation and the UK's Aberdeen Fund own six per cent each in Grasim. All foreign portfolio investors put together own nearly 23 per cent, while domestic MFs own a little over nine per cent. ICICI Prudential Life Insurance and global depository receipt holders owned 4.3 per cent and 8.1 per cent, respectively.

The Birlas own only 31.28 per cent stake in Grasim. According to the regulations, a majority of minority shareholders must vote for the merger proposal. The Birlas have a 59 per cent stake in Nuvo.

Corporate governance advisories said they'd recommend minority shareholders to reject the merger. Shriram Subramanian, chief executive at InGovern, said the proposed deal was against the interest of small shareholders, with the only purpose being to raise the promoters' stake.

Birla has said the merger would marry the mature businesses of Grasim with new-age companies of Nuvo, simplify the shareholding structure and help unlock value in the financial services business, housed with Nuvo.