Tata Steel - Bhushan Steel merger EGM today March 26: VOTE AGAINST THE RESOLUTION

SMALL INVESTORS’ WELFARE ASSOCIATION    

SirenBajao@gmail.com 

The Tata Steel - Bhushan Steel merger EGM today; March 26:

SHAREHOLDERS SHOULD VOTE AGAINST THE RESOLUTION FOR MERGER

1) THREE YEARS FOR COMPLETION:  The likely completion of the merger will happen in May 2021, literally on the third anniversary of the announcement of Tata Steel as the victorious bidder in NCLT. Three years ? For a company the stature of Tata Steel ?


2) THE SHARE SWAP RATIO: Interestingly, BSL performance has zoomed in recent quarters, what with the wheels of fortune smiling again at the auto industry (BSL is the country's leader in auto grade steel). Based on the latest annualised quarterly results, the BSL shares are currently quoting at a PE of less than 2 times pegged to the share swap ratio (1 share of Tata Steel to be allotted against 15 shares of BSL), while Tata Steel shares are trading at a PE close to double digits. So the question shareholders are naturally asking, "is the share swap ratio fair to BSL shareholders ?"


3) THE RATIO WAS DECIDED THREE YEARS BACK: The author justified the ratio in his mind thinking that it is unfair to see today’s performance, probably the valuation was based on 2017-18 financials when BSL was showing losses (has been under SFIO investigation for some time now) and the Singhals were cooking their books to stay afloat and solvent and Tata Steel was their white knight in shining armour. So for academic interest, he decided to dig out the Valuation report and Fairness opinion of 2018-19 and was in for a shock.

4) THE VALUATION REPORT: The fairness report simply says that the valuation is fair basis Valuation report, Scheme documents etc. So it all boils down to the Valuation report, which describes four methods:

(a) Income Approach: not considered  by Valuer as Tata Steel did not provide its projections

 

(b) Cost Approach: not considered as historical coat of assets for a loss making company “has limited relevance in valuation of a business as a going concern”.

 

c) Market Price Method: Average of last six months monthly average prices (VWAP) which concludes 1:15

 

(d) Market Price Method II: Comparable Companies Method where EV/Ebitda of comparable companies is to be considered. Then strangely, instead of comparing the EV/Ebitda of BSL with that of other comparable companies, it simply takes Enterprise Value of BSL, reduces liabilities (including preference shares) etc. and divides by no of shares to justify result of c above. So much for comparing valuation of similar companies. How could Tata Steel accept this, float it to the stock exchanges and file its merger scheme basis such a glaring error ? But we guess, when your reputation of governance is as strong as Tata Steel, you can get away with murder.

 

WHAT DO SMALL SHAREHOLDERS DO ? We do not question the buyout of BSL by Tata Steel, that is done and BSL is now 72%+ owned by a WOS of Tata Steel and that is fine. However, why short-change BSL existing shareholders? Let BSL continue as a listed entity, its share is worth well over Rs. 100 (December quarter EPS is Rs. 8.35 i.e. Rs. 33.40 annualised EPS). 

 

The court convened shareholder meeting is today, March 26 2021 at 3pm and e-balloting has already started. Majority of the minority has to approve (Tata group cannot vote). Should shareholders not vote for continuing BSL as an independent step down listed subsidiary of Tata Steel ? After all, it does not prevent Tata Steel from leveraging synergies; after all we have so many examples of parent and subsidiary both being listed (Birla’s, Vedanta..... and even Tata’s

 

SHAREHOLDERS SHOULD DEFEAT THE PROPOSAL FOR MERGER TODAY.

 

Review of SEBI Delisting Regulations, Comments sent on 19.12.2020

Dear Sir,

We thank you issuing the discussion paper on Delisting Review. We find that some of our suggestions have found their way in the paper but many others have been ignored. While our suggestions on Indicative Price, Lien marking, timeline for applying for Stock Exchange approval have been looked into, other suggestions on discovered price, Counter Offer, Delisting-cum-Open offer, Early Bird Incentive, Definition of DVR have been ignored.   We have given our comments in the desired format and have  reiterated our suggestions at the end of the letter. Hope you will find merit in our suggestions and they will soon be .

Thanking you.

Yours truly

For SMALL INVESTORS’ WELFARE ASSOCIATION

CA Arun Goenka

 

 

1. Public comments are therefore invited on the aforesaid proposals in the following format:

Name of entity/ person/ intermediary: CA Arun Goenka

Name of organization (if applicable): SMALL INVESTORS’ WELFARE ASSOCIATION

Regn No. F-72744 (M)

Contact details: Address, Mobile No. etc. 703, Meadows, Sahar Plaza Complex, AndheriKurla Road,J.B. Nagar, Andheri ( E) , Mumbai 400 059

Email : SirenBajao@gmail.com Tel : +91-22-4215 1349 Mobile No. 93230 91348

 

Sr. No.	Proposals   Page No. Para No.	Proposed/ suggested changes	Rationale
1	1.4.ii	The IPA shall be made by the acquirer / promoter through the manager to the delisting offer.	The words through the manager, have been suggested to be deleted. No need to first appoint a Merchant Banker to issue “Initial Public announcement / IPA”. This can be “Self Declaration” in the prescribed form. The basic objective that such “price sensitive information, and should be disseminated in the public domain in a real time manner” is defeated and crucial time is lost in finding and appointing a Merchant Banker. May be quotations will be invited and discussion take place with more than one Merchant Banker leading to the chances of leakage of information.   In the case of Takeover the IPA may need a specialist an expert Merchant Banker since the matter is more complicated and often involves information required for a third party which may not be easily available. In the case of delisting the whole information and management is in the control of the promoter, IPA can be issued immediately.   The format of IPA can be made simple and self declaration type.   On the lines of DPS in the Takeover code, DPS may be issued within 5 days of IPA by a Merchant Banker.
2	3.4	This can be dropped	This will cast an unnecessary obligation on the company. It serves no useful purpose. Delisting offer should be viewed only as a short-term price advantage opportunity for investors.  If the company has a bright future, the delisting cannot be in the long-term interest of the investors. On the other hand, if the company does not have a bright future ahead, no Promoter shall go for delisting.   Save the Committee of Independent Directors from any kind of false/controversial recommendation. Let the investors decide for themselves.
3	5.2	Promoter(s) / Acquirer(s) may be allowed to specify an indicative price which shall not be less than 25% over the floor price calculated in terms of Regulation 8 of Takeover Regulations.	It is meaningless to incorporate “Indicative Price” if it is going to be the same as floor price. It will be unnecessary repetition and confusing (Vedanta delisting offer Floor Price 87.25 Indicative price 87.50) There has to be an objective for giving Indicative Price. It should be made optional not obligatory. The objective of Indicative Price should be to encourage the investors to participate in the delisting offer. If  an offerer is very keen on the success of delisting offer, he can indicate that by giving a higher offer price which should not be less than 25% of the floor price. The text of my original suggestion to SEBI Chairman sent on 16th September 2020 is reproduced below: 1.      INDICATIVE PRICE Although the term  “indicative price” is nowhere mentioned in the Regulations, but in practice, it is very commonly used. The use of the term “indicative price” should not be allowed. This is very misleading, and untrue as well. This is also against the spirit of the regulation which wants to provide a free and transparent price discovery mechanism, The “indicative price” unfairly influences the mind of the investor who cannot now bid freely without being guided by the indicative price.   Indicative price is supposed to indicate the price the Promoters / acquirers are willing to give, but in reality the final Exit price is always substantially higher, on an average  by  30% to more than 100%. The use of indicate price should be permitted only in the situation where the promoters want to encourage public participation in the offer  giving  incentive by means of offering a higher price. In such a situation the “Indicative price” should not be less than 150% of the “floor price”. In the case of Alfa Laval the indicative price announced was higher by more than 40%. The Floor Price was  Rs. 2,045/-whereas the Indicative Offer Price was Rs. 2,850/- Such indicative price can be permitted, but not Rs.87.50 announced by the promoters of  Vedanta, since the floor price is almost the same.
4	6.5	Promoter(s) / acquirer(s) shall open an escrow a/c with in seven working days of the shareholder’s approval and deposit therein an amount equivalent to 25% of the total consideration, calculated on the basis of the floor price / indicative price. The remaining amount may be deposited as per the existing provisions contained in Regulation 11(1).	The change suggested is to remove the word indicative price and make it obligatory to deposit only 25% of floor price. This is suggested to encourage the Offerer to offer liberal indicative price without much obligation and funds constraint right from the beginning. There is a considerable time gap  between the time of opening the Escrow account and the actual fructification of the delisting offer. This may add a substantial additional initial financial constraint for the promoter in declaring a higher Indicative Price, and will discourage him from announcing higher indicative price.
5	13.6.i	Prior to making the IPA, the Promoter / Acquirer shall appoint a merchant banker registered with the Board, who is not an associate of the acquirer / promoter, as the manager to the delisting offer.	In line with our suggestion that IPA can be in the self-declaratory mode, IPA should be deleted.
	13.6.ii	Due – diligence shall be performed by peer reviewed practicing Company Secretary or Chartered Accountant, in place of MB, not relating to MB / Acquirer / Promoter / their Associates;	The word Chartered Accountant (CA) has been suggested to be added in view of the fact that CAs are more suitable for the job because of the education, training and regular involvement with the financial and corporate legal affairs of  companies

 

 

Apart from the above there are several other suggestions which were given to SEBI from time to time. These suggestions needs to be looked into seriously to achieve the stated objective.

 

 

Extracts from my email dated 16^th September 2020

Further to my earlier letter dated  4^th  July 2020 given in the the trail mail, I am eagerly waiting for some amendments and clarifications on the matter of Delisting as suggested. When the delisting fails, the investors and promoters alike everyone loses. SEBI as a regulator has to ensure fair play and higher success ratio of any such exercise.  Keeping this in mind I had given my suggestions and I am clarifying and adding some small suggestions so that all can be incorporated in one go.

 

1.           DISCOVERED PRICE

 

The discovered price has not been defined in the regulations. please define it as a price at which maximum number of shares have been offered. Not the price at which the threshold of 90% is reached.

 

2.         COUNTER OFFER

 

The Counter offer should be allowed to be given even when shares offered have not reached 90%  threshold.

 

3.        DELISTING-CUM-OPEN OFFER

 

Promoters may be given a Delisting-cum-Open offer opportunity. For example in the case of Vedanta, promoter's holding is 50% they have to acquire minimum 40% from the market, assuming they fail to get 40%  and the offer fails. In such a situation the promoter may be allowed a-la counter offer style, that he is willing to accept such % of shares as will not violate the MPS norms. Say in this case 25% at a price to be announced  by him. This will work in favour of all.

 

4.             EARLY BIRD INCENTIVE

 

An early bird incentive may be allowed to be offered for better management of delisting. Rather than everyone waiting till the last, investors who tender their shares early may be given incentive, say 0.5% for each day. Since the offer is to be kept open for 5 days.{Reg.13 (2)}, let it be, for example 2.5% more to the person tendering on day 1, day2, 2%.......so on .

 

 

5.            SUGGESTED CHANGE IN REGULATION 3(1)-- DVR

 

[Explanation: For the purposes of these regulations, the term “shares” shall include equity shares having superior voting rights.]

The above explanation seems to be a drafting error and needs to be changed. Because of the above, delisting of shares with inferior voting rights are not covered . This seems to be an oversight.

The concept of shares with Differential Voting Rights or (DVRs) was introduced by way of amendment of Section 86 in the Companies Act 1956 which came into effect from 13.12.2000. Such voting rights may be superior or inferior.

In the case of Jagatjit Industries, DVR shares with superior voting rights were issued. These DVR shares carried no rights to dividend, but 20 votes per share.

In 2008, Tata Motors had issued DVR shares with inferior voting rights. Tata Motor s DVR shares carried one vote per 10 DVR shares but a 5 per cent higher dividend. Shares with inferior voting rights have not been included in the definition of ‘Equity Share’ the implication is that shares like TATA Motors DVRs cannot be delisted or delisted without following the delisting regulation

 

VEDANTA SAGA continues-- Open Letter to Lalita Gupte

SMALL INVESTORS’ WELFARE ASSOCIATION

      Email : SirenBajao@gmail.com  

Madam,

We were shocked to learn of your resignation from Vedanta Limited as Independent Director and Chairman of the Audit Committee.

 II. The Company release attributed this to “balance your work and other family commitments”. We find this hard to digest, considering the following:

(a)     In FY 19-20, there were just 7 meetings of Vedanta Board and Audit Committee

(b)     The Company was paying you an excellent sum of Rs. 85.50 Lacs

(b)    You have not resigned from any other company

(c)    You were only nine months away from completing your second and final term as Independent Director of Vedanta

The above suggests that there is more to your resignation than meets the eye. This kind of act of kicking such a hefty sum for relatively low amount of work is only done when conscience comes into play and when things make a person uncomfortable.

III. As Independent Director, your primary fiduciary duty was to the minority shareholders and you owe it to us to tell us the real reason for your resignation, else your sacrifice will go in vain. You have alert Finance Ministry, MCA, SEBI, Stock Exchanges and all the small shareholders. You have to also alert the Big Daddy –LIC that the company which they valued at 320 per share is almost at 70% discount because of the poor corporate governance.

IV. Was it the $ 956 Mn inter-corporate loan by Company to its parent company ? If so, was it that:

(a)    It was a FEMA violation to give an inter-company loan to below investment grade company overseas?

(b)    It was a diversion of funds from a public company to the promoter’s hands?

(c)    It was given at a nominal 7%pa when G-Sec rates are at 5.85%pa (while the promoter borrowed at 13%pa when 12m USD Libor is at 0.33%) i.e. given at rate other than arm’s length?

 

Even the auditors have qualified their audit report stating that there are “inherent uncertainties caused by the fact that the parent company has reported a material uncertainty relating to its going concern…” and hence expressed their inability to comment on the fair value of the loan asset. In simple words, the loan may never come back.

V. Was it that the Company violated its own Board approved Dividend Policy of upstreaming entire dividend of HZL to its shareholders?  

So far, Vedanta has up-streamed only 22% of the dividend received from HZL.  Vedanta Chairman Anil Agarwal publicly calls dividend pay-out its 50% public shareholders, as Leakage. To stop this Leakage and please the Chairman, the Vedanta Ltd Board has found a way to give HZL and Vedanta money to its promoters via inter-corporate loans?

 

VI. Were there other issues of compliance, governance and audit that compelled you to resign?

Or were you asked to resign?

Or did you resign due to other differences?

Surely, being an independent director for over 5 years and the Chairman of Audit Committee, you would have insights into all the wrongdoings of the company.

 

VII. Madam, you were our representative on the Board, you owe it to us. Please give us the true reasons for your resignation. We have stopped expecting anything from other so called Independent (sic) Directors. No so called independent director of the company, has your spine and uprightness to let go such huge personal benefits that too post retirement.

We were assured  that with Mrs. Lalita Gupte on the Board, she will protect our interest, she is the torch bearer of corporate governance.

Your silent resignation will only propel the Vedanta promoters and its Board to even more blatantly violate corporate governance norms.

Will  your conscience allow you to let your massive sacrifice go to waste without achieving the result, it set out to achieve? Protection of small shareholders can only be achieved if you make the public announcement of your reason for resignation.  

 Kahlil Gibran once said; sometimes in life, it becomes your duty to help remove the stone over which you stumbled, so others don’t. In such situations, keeping silent is not an option. For a conscientious person like you, it may actually weigh heavily on you.

 For Small Investors' Welfare Association

VEDANTA DIVIDEND UPDATE

Late last night again after 10 pm, Vedanta informed the Stock exchange that their Board is meeting on 24th October 2020 to consider first  Interim Dividend.  The calculation shows that Vedanta received Rs. 4526 in May and  Rs. 5843 crores it will get in October total Rs.10369 crores divided by  37 1.72 crores issued number of shares, the dividend per share from Vedanta  can be as high as 27.90  just on distribution of Hindustan Zinc dividend.

VEDANTA: MASSIVE DIVIDEND COMING

 AA has started milching the cash cow—Hindustan zinc Ltd.

Yesterday (15.10.20) night at 2215 hours, Hindustan zinc (HZL) informed stock exchanges that it was modifying its agenda for Oct 20 board meeting to include interim dividend.  This is a typical AA style. First on 13.10.20  at around 10.12 he simply informs about the Board meeting keeping us guessing DIVIDEND NAHI DEGA?  After making our palpitations go high, now is the time for Vedanta shareholders to rejoice. Fortunately the pipeline to the London HQ of the parent passes through us. My calculations show a minimum dividend of 50 from Vedanta. 

1. In June this year, HZL took credit rating from Crisil for Rs 16,000 Cr borrowings via CPs and NCDs. Added with its recently enhanced bank borrowing limits (fund  & non-fund based) of Rs 2900 Cr AND its June 30 Cash & equivalents balance of Rs 15,480 Cr, gives an aggregate firepower of Rs 34,380 Cr. Theoretically, it can easily translate to a massive dividend of Rs 30,000 Cr or Rs 71 per share. At 64.9% holding in HZL, Vedanta could get cash inflow of Rs 19,470 Cr.

2. In May earlier this year, HZL had given an interim dividend of Rs 16.50 per share or Rs 6971 Cr of which Vedanta received Rs 4524 Cr (64.9% holding). This was not passed on to Vedanta shareholders despite a clear dividend policy and Anil Agarwal has been facing shareholder ire from Vedanta shareholders.

3. The aggregate of items 1 and 2 work out to Rs 23,994 Cr potential dividend from Vedanta to its shareholders i.e. Rs. 64.50 per share (371.7 Cr shares outstanding in vedanta).

4. With the failure of de-listing and with egg on his face of shareholders massively losing out (share price fell from Rs 140 levels to Rs 95 levels in a matter of days in last one week), Anil Agarwal faces an uneasy bond with his own shareholders with whom he now has to live on. There is an urgent need to appease his fellow shareholders and Vedanta’s dividend policy explicitly states that HZL dividend received will be passed on to Vedanta shareholders. This is also to help the cash starved parent facing default.

5. Against the calculation of a potential Rs 64.50 per share dividend as per item 4 above, one should definitely expect a Vedanta board meeting shortly to declare Rs 50 per share dividend to Vedanta shareholders.

Delisting Counter Offer- should be fair to investors as well-Vedanta

Re. VERY URGENT AND IMMEDIATE PLEASE. Delisting Regulation- Vedanta

The apprehensions as expressed in my letters dated 4^th July and 2^nd July 2020, all came true. The massive delisting exercise, the biggest ever in the country is failing. This I feel also a failure of the SEBI Regulations to keep pace with the evolving situation.

Majority of the investors in the share market do not have such a long term vision or appetite as LIC . Many small investors are staring at a massive loss of their wealth. The share price of Vedanta has already slipped down from 140 to 112 and it's likely to go down further.

The counter offer process as it stands now, is unfair to the small shareholders. While the promoters get the second chance to revise their offer upwards, the shareholders do not get the chance to revise their bid downwards. A fair second chance should be given to both.

SEBI should allow counter offer to the Vedanta  promoter in case they are  willing to do so. The Delisting exercise was just a touch and go affair with numbers showing under 137 crores shares received, yet with confirmed bids the book  fell short of 134 crs. While you should investigate the reason for this mismatch and take appropriate action, you should permit the promoters to make a counter offer.

I have, in the past also, suggested that for allowing the counter offer, the crossing of threshold of 90% should not be made compulsory. As a matter of fact, the “discovered price” is not defined anywhere in the regulation and in the past it was taken as the price at which highest number of shares were offered(Alfa Laval delisting). It is against the interest of the small shareholders who are not given a second chance to revise their bids  lower.  The counter  offer  will give them this much demanded second chance.

VEDANTA DELISTING- Ground check

Now that the investors have got all kinds of GYAN about valuation and the likely exit price, it is time to do some ground check.  The price of 150 or 200 or 300 investors will be able to get only if the promoters are able to cross the  threshold of 90% i.e. they get a minimum of 134.78 Crs. shares in the offer. Every investor must ensure that he participates in the offer at whatever price he feels he deserves, be it 100 or 1000, but participate he must. What are the hurdles? Just ensure that:

1.       All your shares are free- if they had been pledged, get them unpledged immediately.

2.       Check with your broker; the cut-off time. Some brokers do not accept the tendering requests on the last date. Some others have a cut-off time of 10.30 am on the last date.

3.       The success of the offer depends upon LIC. If you want to be aware of LIC’s bidding, check for the bid size of 23.66 crs.

4.       The bidding details can be viewed on the link given below:   

https://www.bseindia.com/markets/publicIssues/BSEBidDetails_ACQ.aspx?flag=ec&Scripcode=5255

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