Protests as royalties surge to Unilever, Holcim

Holcim Ltd, the world’s largest cement maker, and Unilever are seeking higher royalty from their units in emerging markets, as business slows at home, spurring protests by minority investors.

Holcim’s two Indian units, ACC Ltd and Ambuja Cements Ltd, are seeking shareholder consent to almost double fees to the parent, after the Switzerland-based company signed a similar agreement with its Indonesian unit. Hindustan Unilever Ltd, controlled by the world’s second-biggest consumer-goods company, last month said it will pay a higher fee to its parent.

The increase in the fees, meant to compensate the controlling shareholder for providing technology and expertise, comes as India prepares to enact a law requiring approval from 75 per cent of minority investors for transactions with related parties. Local units of two dozen overseas companies have doubled the fees in the past four years after Asia’s third- largest economy eased rules to spur technology transfers, according to Institutional Investor Advisory Services.

“The small investor is simply left in the lurch,” said Prateek Agrawal, chief investment officer at Mumbai-based ASK Investment Managers Pvt, with Rs 1,600 crore ($299 million) under management. “We should not be accepting this as fait accompli.”

Hindustan Unilever had its recommendations cut by at least 11 brokerages on January 23 after saying it will double fees to Unilever. The stock had its biggest two-day drop in two years after announcing the plan, which Chief Financial Officer Sridhar Ramamurthy said was “designed to help us grow competitively.”

Related party
Mumbai-based Hindustan Unilever's shares rose 1.7 per cent to Rs 460.55 yesterday. They have dropped 12 per cent this year compared with a 0.2 per cent increase in the benchmark Sensex index. Related-party transactions “ought to be transparent and where necessary, or of a certain size, be put to vote,” Hugh Young, who helps manage about $70 billion of Asian equities including Hindustan Unilever and Ambuja Cements at Aberdeen Asset Management Asia Ltd in Singapore, said in an e-mail.