Small investors will get three shots to derail Holcim move

The complex rejig likely to come for shareholder voting at three different stages

Cement giant Holcim’s controversial capital restructuring plan of its Indian subsidiaries ACC and Ambuja Cements is likely to be taken up for voting at three different stages. Investor groups are advising minority investors, including institutions, which are likely to get a raw deal, to use each of these resolutions to record their dissent.

Currently, Holcim holds 50.6 per cent stake in Ambuja and 50.3 per cent in ACC. Through a series of transactions that include cash and stock swaps, Holcim would increase its stake to 61.39 per cent in Ambuja, which in turn would hold 50.01 per cent in ACC.

The restructuring exercise would require shareholder approvals at three stages — issuance of shares of Ambuja to facilitate the share swap, a scheme of arrangement through courts and increasing stake in ACC in the future.

Issuance of shares of Ambuja to facilitate the share swap falls under Section 81(1A) of the Companies Act, 1956. This seems to be the best chance for minority shareholders, as this Section mandates a special resolution be passed for any additional issuance of capital---any special resolution is to be approved by 75 per cent of shareholders. The promoters may find it difficult to push this resolution through if all minority investors decide against it, as currently, promoters hold only 50.6 per cent.

According to Institutional Investors Advisory Services (IiAS), the company is expected to submit its application for the scheme of arrangement to the Delhi and Gujarat high courts later this year. "Our experience suggests in most such cases, under Sections 391 to 394 of the Companies Act, 1956, the court directs the company to convene separate meetings for both its shareholders and creditors. In such a scenario, shareholders will be able to exercise their judgement on the proposed transactions and vote accordingly," IiAS said.

The rules of such schemes of arrangement have become more stringent after the Securities and Exchange Boards of India (Sebi)'s assertion that votes cast by public shareholders in favour of the proposal have to be more than the number of votes cast by public shareholders against it. Therefore, assuming all public shareholders in Ambuja (who hold 49.4 per cent in aggregate) cast their vote, at least 24.7 per cent of the shareholders need to vote against the resolution to quash it. If only 20 per cent of the public shareholders vote, the resolution would be blocked by 10 per cent or more dissenting votes.

According to Sebi regulations, promoters can automatically increase their holding five per cent each year through the creeping acquisition route. Ambuja's board, however, has approved a proposal “to make commercially reasonable efforts to increase its economic ownership in ACC by up to 10 per cent in the 24 months following the implementation of the scheme of amalgamation". It has also given an in-principle approval for increasing stake up to Rs 3,000 crore (in compliance with regulatory conditions). IiAS said, "In doing this, Ambuja may breach their investment limits under Section 293(1) (c) of the Companies Act, 1956, or the limit for inter-corporate transactions under Section 372A of the Companies Act, 1956, in which case they will have to seek shareholder approval.” The advisory firm has asked minority shareholders to oppose the deal in all the three stages.