Sucheta Dalal :Madura Coats (24 August 2003)
Sucheta Dalal

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Madura Coats (24 August 2003)  



Next week, Madura Coats’ Extraordinary General Body Meeting (EGM) at Chennai will pass a resolution to buy out the shares of all residual shareholders, other than promoter J&P Coats and their nominees at a price of Rs 40 per share. This is the third buyback offer from Madura Coats, which has already gone private and has less than 7 per cent of its equity with non-promoter investors. However, our source says that the offer made under Section 100 of the Companies Act, which allows a company to extinguish its shares after court approval, sets a bad precedent under Company Law. That is because Madura has not explained if and how, its price of Rs 40 is fair value for the shares. If this is not mandated, shareholders in any private company can gang up to throw out the minority investors without offering them fair value. Although, few investors would be adversely affected by the Madura case, our source plans to demand that the company justify its offer price or face a battle. But the Department of Company Affairs also needs to look at the application of Section 100 as a buyback too in private companies.

Videshi is best

Swadeshi activists begin to make sense when you notice how enamoured are our netas and babus are of foreign wisdom. The Finance Ministry has recently appointed Financial Dynamics of London to handle public relations for the ministry. The company is apparently headed by Klienwort Benson’s head of Mumbai operations until it quit India. It is unclear is why the Ministry needs image management when it is not seeking to borrow money and is sitting on a fat forex kitty. Another company, Cadogen Financial, has been retained by the Asian Development Bank (ADB) to study how to improve retail penetration of the mutual fund industry in India on behalf of the Department of Economic Affairs. The firm say that it is only ‘beginning to learn how the Indian market works’. But doesn’t India already have well recognised independent research firms that are entirely focussed on the Indian mutual fund industry? But they are purely swadeshi outfits.

Vested interests

Last week we said that the Reserve Bank of India(RBI) needs to frame some rules to ensure that nationalised bank chairman, doling out hefty loans to companies do not immediately seek post-retirement sinecures with borrower companies. In this connection, a reader tells us about two petrochemical companies that are defaulting on a fat loan cleared by a public sector bank several years ago. The chairman who cleared the loan was appointed to the board of both companies after retirement and is now chairman of the audit committee. The bank is extremely slow in pressing for recovery, probably out of deference for its former chairman. Can there be a worse mockery of good governance rules than this?

Copying Hungama

The success of Reliance’s Hungama offer has triggered off a me-too response from the MTNL’s Garuda service. Its WLL service is priced even lower than Reliance’s offer. But Raghavendra Pai, an irritated user points to the following deficiencies, at least in MTNL’s Mumbai service: poor network coverage or clogged networks —usually either/or; no value additions such as caller line identification or SMS; old technology (MTNL Mumbai uses CDMA V 5.2 technology, as against CDMA 2000 1x used by private players); bulky handsets and callers hearing a ring tone which the subscriber’s phone fails to register. Is it any wonder the MTNL’s own union has alleged that the service is being deliberately sabotaged to benefit the competition?

Hairy business

The Wall Street Journal says that China may be the world’s biggest hair exporter, but Indian hair is better, especially Indian temple hair, which fetches the best rates. When processed and converted into hair extensions for top end users, it sells for a cool $3,000. With a source like Tirupati Devesathanam, whose 2 crore devotees provide good quality hair, this is an area where the ‘Made in India’ mark has a quality premium. The problem in growing the business is inadequate supply. If only our exporters would find a way to make it easy for people to earn money by donating hair; they could end up with a thriving industry that is certainly far better than the practice of desperate people donating blood for money.

Tailpiece

After a spate of corporate scandals in America, shareholder power seems to be show signs of improvement. Institutional Shareholder Services reportedly says that 1,000 shareholder resolutions were filed in fiscal 2003 as against 830 last year, and 139 were passed by a majority vote as against 102 last year. According to Bloomberg, shareholder power increased because of support from organised labour filed 40 per cent of the shareholder initiatives.


-- Sucheta Dalal



 



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