Promoters cornered shares in related party deal without seeking minority shareholders nod, says InGovern
Promoters of Shree Cement have come under the scanner of markets regulator SEBI and stock exchanges after InGovern, a Bengalaru-based watchdog for corporate governance, accused the company promoters of cheating its minority shareholders.
The BSE has sought explanation from Shree Cement and the company is yet to reply, sources said.
Shares acquired for just ₹89 crore
According to InGovern, the promoters of Shree Cement hold 64.72 percent stake in NBI, a non-banking finance company. During financial year 2016-17, NBI sold shares in unlisted companies, including Shree Capital Services, to another group holding company of the Shree Cement promoters at a 97 per cent discount to its fair value.
The unlisted company in turn held shares in Shree Cement and no investor-voting or consent was sought by Shree Cement promoters, which was necessary, says InGovern.
“Shares with a fair value of at least ₹3,077 crore were sold-off to other promoter entities for only ₹89 crore,” InGovern said.
The proxy advisor has further said there was no rationale for selling these shares to Shree Cement promoters. There was no need to exit as NBI did not need the cash and such related party transactions were not put to vote by minority shareholders. Further, the valuation report was not disclosed to shareholders and no disclosure on sale was made to the regulators or stock exchanges. Part disclosures were made only in the annual report.
“Even today, this demonstrates the mal-intent of the promoters that have surreptitiously short-changed and perpetrated fraud on minority shareholders. (This) Should be noted by investors of Shree Cement. Ashok Bhandari, an Independent Director, who was on the Board of Directors that took the decision to sell the unlisted shares at a huge discount, has been appointed Chairman of the Board in September 2020,” InGovern said in its report seeking an investigation by SEBI and reversal of transactions for fairness to minority shareholders.
The value of Shree Cement shares held by these unlisted companies, whose shares were held by NBI, was ₹28,125 crore and the proportionate beneficial value to NBI would be ₹3,077 crore. Thus, by selling the shares at ₹89 crore, NBI sold these shares at a 97 per cent discount to fair value.
Shree Capital Services is the largest shareholder of Shree Cement, holding 89,84,155 shares or 25.79 per cent shareholding in Shree Cement. Even at the lowest price of ₹13,980 per share of Shree Cement in the last quarter of FY17, the valuation of these shares would have been ₹12,560 crore. As NBI holds 15.38% shares of Shree Capital Services, the beneficial interest of NBI would have been ₹1,932 crore.
“It should be noted that both NBI and Shree Capital Services are low-debt companies with huge net worth and hence any gains and value would accrue to shareholders,” InGovern said.