the Company will be held on July 10, 2008, to consider and approve the
proposal for Buy-back of equity shares of the Company. Currently, the
promoters holding is ~88%. If the company purchases shares and the
promoter's holding goes beyond 90% then DLF might get delisted again.
I'm saying again because, DLF was delisted in 1984 due to d same reason
that promoter holding was >90%. Feedbacks
welcomed.
Class action needed to restore investor confidence26 Jun, 2006
While
the Indian capital market seems to be recovering from a savage
correction, the mega issue of DLF Universal may have run into bigger
trouble. The Securities and Exchange Board of India (Sebi) is
understood to have tossed the decision of clearing its public offer to
the Ministry of Company Affairs (MCA). Since the company is currently
unlisted, the MCA is probably the right forum for dealing with investor
complaints.
Sebi has asked the MCA to decide whether the company
should be allowed to list and go ahead with what will be India's
biggest issue to raise an estimated Rs 13,600 crore by issuing 20.2
crore equity shares to the public with a two rupee face value. Since
the IPO document has to come back to Sebi for its clearance, it is
obvious that DLF's listing plans have received a big setback.
Here
is a look at what
DLF's minority shareholders have to say. The
promoters of DLF today own 99.5% of its equity. The remaining 0.5% is
held by investors who chose to stay on when DLF delisted the shares.
DLF was a listed company until 2002-03, but its promoters increased
their holding beyond 90%, admittedly in violation of Sebi's Takeover
Code. They admitted the lapse, paid a fine of Rs 5 lakh and made an
open offer to the public at Rs 320 per share to buy out minority
shareholders and went private.
Around 1,308 shareholders chose
to hang on to their shares. Such shareholders invariably lose many of
the privileges available to investors of listed companies, but since
DLF intends to raise public money again—that too within three years of
its September 2003 delisting—it cannot get away by leaving residual
shareholders in the lurch.
These shareholders allege that the
company made a rights issue of partially
convertible debentures in a
1:1 ratio last year, but omitted to post the offer letter to 90% of the
minority investors. The lucky 10% who got the letters and will profit
enormously are all closely connected with the company. These debentures
have since been converted into 10 equity shares each. Further, the
company made a bonus issue in the ratio of 7:1 and then split the face
value of shares to Rs 2 each.
Those who did not get the rights
offer were thus deprived of 400 shares each against each share held on
the record date. Since the promoter holding is 99.5%, it is clear they
did not want to share the bonanza emanating from their massive capital
restructuring exercise with the 1,308 investors who clung on to their
share holding.
DLF's vice chairman Rajiv Singh insisted to us
that the Offer Letters had been posted and that investors failed to
apply for debentures because they did not see value in
the company. He
also says that several of these investors are brokers who simply
misjudged the rights offer.
But the company took care to
build-in serious disincentives. The partly convertible debentures
carried a 2% interest and were to be convertible anytime over the next
20 years. The letter also made the misleading claim that the company
had no plans to re-list its shares on the stock exchanges. Naturally,
minority shareholders have written to Sebi alleging breach of trust.
DLF's
claims about having sent the Offer Letter are also debatable since I
have received several letters from genuine investors such as Kiran
Parghi who holds 40 shares or Major Jasbir Singh (retd.) who are
ordinary investors who have not received their offer letters.
The
Midas Touch investors' association has a different allegation. It has
written to Sebi saying that DLF's Earning Per Share (EPS) stated as
Rs
12.84 is misleading and it ought to be Rs 1.32 as per Sebi guidelines.
It
may well be that allegations against DLF are extra shrill because the
incredible post-listing valuations reported by the media has heightened
the sense of loss. Clearly, if the offers were not posted, investors
have a right to demand restitution.
The speed with which the IPO has been finalised shows that listing was part of
the agenda even when the rights offer was made.
Things
have changed a bit since the media predicted stratospheric valuations
for DLF and its Rs 60,000 crore land bank. The market is volatile and
shaky and the very institutional investors who were hot on the chase of
realty investments are now using their clout to beat down valuations.
In a booming capital market and in the midst of a realty bubble, DLF
may manage to fend off these charges and even get a clearance from the
MCA, but it doesn't bode
well in the long term if the company is seen
as one that does not care about its minority shareholders.
Companies
such as Infosys have made millionaires out of thousands of investors,
while DLF's promoters want a place in the global rich list while
depriving 1200 of its die-hard investors their claim to justifiable
profits. If the company is allowed to get away with this, it would make
a mockery of investor protection rules. Worse, it would encourage more
companies to delist shares, restructure capital and go public
again—always at the cost of minority shareholders.
Ideally, the
regulators should take a leaf out of the Reserve Bank of India's book
(the RBI recently ordered Citibank to ensure that every single credit
card holder who qualified under the Fly-For-Sure scheme was given the
free air tickets promised to them) and force the company to compensate
investors through the promoters'
substantial shareholding. Only then
should the company be allowed to go public.
In fact, largeinstitutional investors must also support such restitution by thecompany, instead of committing substantial investments prior to the
issue. After all good corporate governance will benefit all investors
over the long run
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