CHARITY BEGINS ABRO
A British hedge fund is set to take the public sector giant and Indian Government to court for selling coal cheap and violating rights of minority shareholders
A London-based hedge fund, with a 1.01 per cent stake worth Rs 2,200 crore in Coal India, is getting ready to take one of the world’s largest coal mine operators and the Indian Government to court. Christopher Hohn, 46, who runs the The Children’s Investment Fund ( TCI), a for-profit venture based in the UK, will file two separate lawsuits in India for abuse of rights of the minority shareholder by Coal India, which has a market cap of Rs 2.2 lakh crore.
Hohn’s $8 billion (Rs 40,000 crore) TCI is famous for its shareholder activism in Europe. In 2007, TCI, founded in 2004, shot off angry mails to ABN Amro Bank asking for overhaul of its weak management. In 2008, Vedanta faced TCI’S ire when the fund threatened legal action against the mining firm’s restructuring plans, forcing it to back down. Hohn is unabashed about TCI’S aggressive stance. “We have an investment philosophy that looks for strong companies and we are not afraid to be in situations that make others a little nauseous,” he said in a rare interview to Financial Times, London. Some of TCI’S biggest investments include stakes in Rupert Murdoch’s News Corp and Walt Disney.
According to data compiled by Ingovern Research Services, TCI acquired more than 1 per cent stake in Coal India in the quarter ending June 2011 through two of its subsidiaries— TCI Cyprus Holding and Ireland-based Talos Capital. The hedge fund is filing two lawsuits, one against Coal India and other against the Indian Government, under the bilateral investment treaty between UK and India. “It is clear that the Indian Government is intervening in a diplomatic way and not supporting minority shareholders in a fair manner,” says Oscar Veldhuijzen, partner at TCI. From June 30, 2011, to date, Coal India’s stock price has fallen 11 per cent from Rs 392.40 to Rs 349.65. The firm has hired Luthra & Luthra for the lawsuits.
TCI’S main contention is that Coal India’s pricing policy for coal—it sells coal at 70 per cent lower than market prices—breaches the company’s duties to maximise value for shareholders. It believes the company has lost close to $19 billion (Rs 95,000 crore) in discounted pricing. The fund is also against the Government’s presidential directive that forced Coal India to sign fuel supply agreements ( FSA) with power companies, committing to provide 80 per cent of their coal requirements. TCI contends that the FSA should only be signed if the coal for those agreements is sold at the market rate. It has also been advocating that dividend payout be raised to 90 per cent of the company’s profits, which amounts to around Rs 17,000 crore. For 2011- 12, the company paid a dividend of Rs 5,400 crore to the Government, which holds 90 per cent stake in the company.
The Government disagrees with
HOHN IS SURE TO FIGHT TOOTH AND NAIL. HE IS NOTAS INTERESTED IN MONEYAS
IN HIS DESIRE TO BE PROVEN RIGHT.
Hohn’s contention. “It is incorrect to perceive that there is an abuse of minority shareholders. In fact, Coal India’s profits have gone up in the current financial year and they have also given a larger dividend,” says Coal Minister Sriprakash Jaiswal. There was a rider in the company’s prospectus that the Government has a right to take decisions in public interest, so the company did not mislead investors during the time of its public debut, says Bhavesh Chauhan, senior research analyst at Angel Broking. “I don’t think TCI has a valid leg to stand on,” he adds. Furthermore, the coal company has fulfilled other milestones mentioned in the prospectus, so the investors haven’t entirely been short-changed.
Others believe TCI is doing a great service to minority shareholders.
COALINDIA CHAIRMAN NARSING RAO (LEFT) AND TCI FOUNDER CHRISTOPHER HOHN