Another victory for investors, though not decisive. Anyone following the Gujarat public sector companies may recall the government of gujarat was seeking to divert 30% of before tax profits of four Gujarat government dominated public companies which are listed towards government sponsored charity. As these have non governmental private shareholders, this was an expropriation of private property, however noble the cause. It was also wholly wrong from a corporate governance perspective. All in all, it would reduce the valuation of such companies and make the cost of capital for such companies much higher, hurting the dominant shareholder, the government the most in the medium and long term. It is also similar in tactics to the diversion of cash to the promoter entity in Satyam Computers, though that was personal aggrandisement, while this is for a good motive. Here is a newsreport.
The government sought to put this to a shareholder vote. The first such vote is now in public domain (for Gujarat Narmada Valley Fertiliser Company limited (GNFC)) at the exchange websites. Here is the proposal: GNFC proposal.pdf Specifically, they tried in the first two items to amend the articles of the companies to permit this action. The government also sought to permit payment of funds from the public sector company towards the charitable activity to the extent of Rs. 99 crores (Rs. 990 million). Due to shareholder activism and since the first two required amendment of the articles by 3/4th majority failed. The third which only needed a simple majority succeeded. I'm not very clear why the first move was made if the second one could enable the diversion of funds. Be that at it may, it is at least a moral victory for the activist shareholders who shot down the 41% shareholder of the company. Here is the result of the postal ballot: GNFC Result.pdf.
See my main blog for the full post.
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