'Indian Ethos Crucial To Takeover Code'

The recently concluded seminar by the Federation of Indian Chambers of Commerce and Industry (Ficci) on the takeover code brought to light certain inhibitions within the Indian corporate sector.

While all fears of takeovers by any foreign predator were put aside by the Securities and Exchange Board of India chairman D R Mehta, it was also felt that any change in rules must take note of the Indian ethos.

Fears raised by the Indian corporate giants indicated that everyone was aware of the fact that the new takeover code will activate mergers and acquisitions in the country's corporate sector. In future, they will be judged by their performance and efforts taken by them to enhance the share value.

 

However, there were queries raised by businessmen during the debate about the influence of increased foreign institutional investors activity in the Indian capital markets.

While some felt that these institutions may buy shares in concert with some predators, others called for a mechanism to trace the buyers in the market at the end of each trading settlement. It was felt that there has to be an efficient method provided for Indian companies to detect who actually own their shares.

The Sebi chairman brushed aside all these fears. He pointed out that the foreign institutional investor can not hold more than 24 per cent in any one company. Besides this, a single FII is not allowed to hold more than 10 per cent in any individual company. There can be no takeover at least by FIIs.

Any other investment beyond 51 per cent in any company will need to have the clearance of the Foreign Investment Promotion Board. The Sebi chairman said that MRTPC will take care of the national interests.

However, participants were not prepared to accept that MRTPC alone can totally protect the national interests. Commented a Ficci official: When Daewoo wanted to take over Thomson, the French government intervened and did not allow Thomson to be sold out to a foreign entity. The French government received flak for this. They still persisted even after the South Korean president urged the French president to see that the deal is put through.

If economies as big as France can have an intervention from the government to protect national interests, the Indian government should not hesitate in doing the same, he added.

The discussion then focussed on the defence mechanisms that can be provided. Indian businessmen persisted with their demand for allowing buyback of shares. This, they said, was essential as many good corporations have promoters holding of much below 51 per cent. Buyback can provide them the facility to consolidate their holdings.

A serious thought needs to be given to the question of preserving national ethos.