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TCI bought into Coal India while raising pricing objections

Shine Jacob  |  Kolkata 

It was termed a David-versus-Goliath battle, where a minority shareholder was locking horns with the major shareholder, the government, in a public sector undertaking.

However, while training its guns on for the losses it has suffered for investment in the state-run company, The Children’s Investment Fund (TCI) has slowly but steadily increased its stake from 0.06 per cent in October 2010 to 1.35 per cent in November, becoming the second-largest stakeholder in the firm.

TCI also bought shares after the Centre made it clear by January 20 that it wanted a rollback of prices based on gross calorific value.

According to officials, its stakes touched 1.77 per cent during January-April, after the London-based discretionary investment manager raised an alarm over the rollback of pricing, citing losses it had suffered.

TCI had approached the recently with a representative suit on behalf of 650,000 shareholders of the state-owned miner.

It has also demanded a compensation of Rs 2,15,250 crore from the government on behalf of shareholders, for losses caused by its policy to price coal substantially below market prices.

TCI had estimated its losses starting from November 2010 to March 2013, for 861 million tonnes of coal sales under fuel supply agreements.

In October 2010, after the initial public offering, TCI held 3.83 million shares in CIL, which increased to about 85.5 million, much above the initial purchase, sources said. In January, the firm had gone for two bulk purchases, pushing the total shares to 1.77 per cent.

TCI’s investments in CIL are through TCI Cyprus Holding Ltd and Talos Capital Ltd

“It is contradictory that while they were criticising CIL and the government over rollback on price rise, going slow on washed coal and alleging the management for losses the suffered, it was increasing the stake in the firm. As a minority shareholder, if they had any complaints, could have raised it during the AGM,” said N C Jha, former chairman and managing director of CIL.

The firm first came out in public after the interference of the central government in the functioning of the coal major, asking the firm to revise the price hike made in December 2011. It even approached the Delhi High Court regarding this in August.

When contacted, Mark Derbyshire, partner, TCI, said, “We increased our stake before the government unlawfully interfered in the affairs of CIL in January 2012. Once it became clear that the directors and the government were both acting improperly, we ceased buying shares in CIL.”

However, sources confirmed that even after the coal ministry intervened by the mid of January hinting at a rollback of the pricing as per gross calorific value (GCV) following protests, and writing a letter to the coal major on January 25 asking them to review the pricing, TCI has went on accumulating CIL shares. A standing committee on coal and steel on January 20 had also asked the firm to relook at prices. While it bought two huge chunks, of more than 2.87 million shares on January 20, it added another 0.86 million shares on January 27.

When contacted, S Narsing Rao, the chairman and managing director of CIL refused to comment on the issue. As of September 2012, foreign and domestic institutional investors hold 7.29 per cent in CIL, while and retail investors hold 2.71 per cent. “TCI did not raise their issues during our AGM, though their proxies were present. Adding to this, the coal major enjoys a lot of sops from the government including allotment of mines for virtually nothing. These issues had to be factored in, while looking at losses,” said a top CIL official.

An act of investor activism
A Mumbai-based analyst termed this as a case of modern-day investor activism, which TCI replicated in other parts of the world.

According to reports, TCI’s fight for shareholder rights has a long history. It is believed that TCI’s shareholder activism led to the split of ABN AMRO and there are also instances related to Japan Tobacco and J-Power, where they led similar acts.

While expressing keenness to work with other shareholder to see CIL properly managed, Derbyshire responded to the notion that it is “known for shareholder activism” across the world.

“We invest, after deep and extensive research, in with solid fundamentals. From time to time it is necessary to take steps to ensure that such are managed properly so as to fully realise their potential. Our preference is to have a strong and constructive engagement with management that can lead to enhanced shareholder value. However, no investment situation is identical to another.”

According to analysts, TCI’s arguments does not stand as it was clearly mentioned in the Red Herring Prospectus (RHP) that CIL’s operations would be regulated by the government and it sells coal below the international prices.

Countering this, Derbyshire added, “It is a statement of fact that CIL sells FSA coal below international market prices. CIL directors – both before and after the IPO – have stated that they wish to raise coal prices and there is no reason why they should not do so. Indeed, they did raise prices, in February 2011 and January 2012. In this latter case, the government of India then unlawfully ordered the reversal of that price increase. The RHP also records that the prices of coal have been deregulated.”

TCI is also batting for use of more washed coal, which is close to international prices, as promised during the IPO, on which CIL is on a slower mode. While keeping mum on the entire issue, the Partha Bhattacharyya, the CMD of CIL during the IPO said, “CIL is setting up a lot of washeries, the process is time consuming does not essentially mean that it is going slow.”

While a case filed by TCI will be heard in Delhi High Court on Thursday, the case on will be heard on December 12. “We believe that the management of CIL has let down all shareholders, including the people of India,” Derbyshire added, determined to fight a long legal battle.

First Published: Thu, December 06 2012. 00:22 IST