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

India Today - - BUSINESS & ECONMY - By Shravya Jain

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

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