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Recently, Gujarat government run companies and corporation went on buying frantically shares of Gujarat Alkalies and Chemicals Ltd (GACL).
The move to buy shares of the state-owned caustic soda maker was aimed at countering spiralling stake of Lok Prakashan Ltd- the owner of largest selling Gujarati daily Gujarat Samachar-in GACL, where the state government now holds 41% stake.
The government may have avoided a situation where government's holding would have turned into minority, but its a wake up call for the Modi government as there are as many as three other companies, in which government holding is less than 41%.
At least three of the six Gujarat government's blue chip listed companies have shown vulnerably low promoter holding, thereby raising a concern of a possible aggressive buying by non-promoters in these companies surpassing the stake held by the government.
These companies include Gujarat Narmada Valley Fertilzers Company Ltd (GNFC), Gujarat State Fertilizers and Chemicals Ltd (GSFC) and Gujarat State Petronet Ltd (GSPL).
"There is a possibility of government holding in a few Gujarat PSUs coming into minority. Promoter and promoter group holding in GNFC is around 41%, while that in GSFC and GSPL is around 37% each," said an equity analyst at a Mumbai-based brokerage firm.
It may be mentioned here that the Gujarat High Court in March 2011 had ruled that GSFC and GNFC could not be seen as government companies. Since the government holding was less than 51% in these companies, they were termed as state-supported joint sector companies and not state-owned companies.
Any government-related decision for these companies had to be approved by the shareholders of the company at its annual general body meeting (AGM), the HC had observed.
"For a state venture or a central PSU, 51% 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 Gujarat government's move to buy bulk quantities of GACL through its subsidiaries like Gujarat Industrial Development Corporation (GIDC), Gujarat Mineral Development Corporation (GMDC) and GNFC through open market purchase was an example of government's worry over mounting stake of a private group in GACL.
As on December 2012, Gujarat government through its group companies held 36.72% in GACL. But since March 2012 Lok Prakashan Ltd resorted to aggressive buying of GACL stake from 12.39% to around 25% by February 2013. Promoter holding in GACL has remained stable at 36.72% for over past five years, while Lok Prakashan has been progressively increasing its stake, which was just 1.85% in March 2009.
However, industry insiders maintained that there are bleak chances of hostile takeover, especially that of a state-owned company.
"In this country hostile takeovers are not easy. Especially nobody would dare to make hostile bid of a state-owned company even if it has a lesser promoter holding of government," said G Chokkalingam, executive director, Centrum Wealth Management.
"In case of Gujarat PSUs, domestic institutional investors (DIIs) hold good amount of stake in these companies. In a possible hostile bid, these DIIs generally go along with government," he said adding that state government's action in GACL was a positive development for the minority stakeholders.
