'MINORITY' CAN SHOW THE 'MAJORITY' WHO IS IN CHARGE!
By Ruma Dubey
The Children’s Investment Fund (TCI) holds 1.1% stake in PSU, Coal India Ltd (CIL). The Govt is the largest shareholder with a 90% stake. Yet, TCI, the second largest shareholder of CIL, a UK based hedge fund has threatened to sue CIL for bowing down to the sarkar, the Govt, when it comes to pricing.
This is probably happening for the first time – not suing, but taking the Govt to task for using its fiefdom when it comes to PSUs. A few months ago, investors had celebrated CIL’s decision to implement a new pricing structure based on gross calorific value (GCV). But soon, the Prime Minister’s Office intervened and CIL was forced to roll back the plan as Govt was worried about power plants not getting coal at the right prices. Good for the power plants but what about CIL? Its objective is to also to run a profitable organization, so why this ‘pressure’ tactics and that too in such crucial decisions which could affect the very profit of CIL?
PSUs are indeed run like the personal jaagir’s of the Govt. An investor buys into the stock because it is a PSU, has bright future prospects, assuming that it runs like any other company, whose main aim is to make profits. But it is only in the recent few months that these profit making PSUs have been forced to become more altruistic, throwing profit and all economics to wind. If we earlier invested in PSUs because it was owned by the Govt of India, today, we should refrain precisely for the same reason – because it is owned by the Govt of India.
And TCI is not shooting in the wind. It has substantial evidence to backup the pressure tactics used by the Govt on CIL. It has obtained an official letter under the Right to Information Act, where Mr. Alok Perti, Coal Secretary, has written to then CIL Chairman, Mr.N C Jha, ordering him to reduce coal prices “latest by 31st January 2012.”
One might feel that this whole thing is too incongruous? How can a 1.1% stake holder sue a 90% stake owner? Doesn’t the one with the majority stake holder have the right to decide the fate of the company, make important decisions? Yes, he does have the right but then he can make such authoritarian decisions only if the company had been entirely owned by him and was not answerable to the other minority shareholders. So looks like, the word, ‘minority’ has once again come to haunt the Govt. Why should the minority shareholders suffer if the Govt wants to force CIL to sell coal at lower prices? Is CIL going to be compensated by the Govt for this ‘subsidy’?
Infact one should really rethink about investing in PSUs if this is the way these companies are run – like personal fiefdoms of the Govt, where they can dip into the cash as and when required and force any decision down their throats.
LIC is in the same boat. One of the most profitable PSUs, it is now literally being poached upon by the Govt. LIC was forced to pick up stakes in PSU banks which the Govt wanted to recapitalize and then it had to ‘rescue’ ONGC’s ill-planned FPO by pumping in Rs.11,070 crore to buy 377 million ONGC shares.
Look at the state of NTPC also. It is being forced by the Govt to continue selling power to state electricity boards and distribution companies though their past dues keep on piling up. So one hand, it is not being paid for the power it has already sold and on top of that, it is being asked to sell more. Does one keep on allowing good money to chase bad money?
Ditto for MTNL which was again, forced, to buy expensive spectrum during the 3G auction and not being allowed to expand beyond Mumbai and Delhi. The company’s balance sheet is today a living nightmare, streaked in bloody red.
If the purpose of getting these PSUs listed is to merely raise money while the Govt continues to ‘run’ the companies based on politics ad vote bank, why do we invest in PSUs at all? Today, we criticize Anil Agarwal of Sterlite Industries for trampling over the interest of minority shareholders, twisting things for his own benefit, then how different is the Govt of India as a promoter? In terms of corporate governance, this quality of management is indeed the pits!
Mounting fiscal deficit and expenditure running beyond control -is that reason enough for the Govt to milk the PSUs dry? If the Govt cannot manage its finances, is it right to punish PSUs who are doing well?
Minority shareholders have shown their might in private sector companies like Crompton Greaves, Sterlite Industries; so why not in PSUs too? It is time for the minority to show the majority that they are in charge!