Clipped from: https://economictimes.indiatimes.com/prime/corporate-governance/how-a-shree-cement-promoter-transferred-inr3000-crore-shares-to-private-entities-for-a-pittance/primearticleshow/82183964.cms
SynopsisNBI Industrial finance quietly transferred its shareholdings to its parent entities for just INR89 crore. InGovern Research, which unearthed these deals, calls for a Sebi probe saying the lack of disclosures and approvals from minority investors demonstrates the mal-intent of the promoters.
New Bank of India (NBI) outlived many of its peers, but its 85-year life has been punctuated by a list of debilitating losses.
First, it lost its home, then its business was taken over by the state, and now the last bits of the value left in it seem to have been lost to some shady deals.
NBI was floated by professor-turned-banker Mulk Raj Kohli in Lahore way back in 1936. It quickly grew to have branches from Multan and Gujaranwala (both now in Pakistan) to Delhi and Gujarat, and had a princely sum of INR2 crore as working capital in the early 1940s.
But soon, the Radcliffe Line,which divided India and Pakistan, cut through its soul and business. The bank first moved to Amritsar and later Delhi. In the following decades, it acquired several of its contemporaries in the North such as Punjab and Kashmir Bank, Chawla Bank, Sahukara Bank, and Didwana Industrial Bank.The commonality between these banks was that they were all of British India vintage with branches and interests on both sides of the border and hit by worsening relations between India and Pakistan.
Of these, Didwana in Rajasthan is the ancestral home of the billionaire Bangur family, which runs the INR1 lakh crore behemoth Shree Cement. It is not exactly clear how and when the Bangurs seized control of NBI, but the merger with Didwana Industrial Bank may have opened the gates.
Often, such mergers are done through share swaps, allowing shareholders of the merging entity a foothold into the larger company. Though the Bangur family traces its origin to patriarch Magni Ram Bangur’s stock-broking business in Kolkata, the later generations have sought their fortunes in manufacturing cement, jute, and fertilisers.
Whatever little ambitions they might have had in the financial sector was smoked out by the second wave of bank nationalisation in 1980. This meant the Bangurs had to allow the government to take over the banking business of NBI. This new public-sector bank would eventually be merged with its Lahore mate Punjab National Bank.
However, Bangurs retained the NBFC business and were running it in the name of NBI Industrial Finance (NBIIF) since 1981.
The company was listed on the Delhi Stock Exchange (DSE). Factors beyond its control again came into play: advent of technology and the emergence of national-level stock exchanges meant regional bourses such as DSE went bust. Investors in stocks such as NBIIF were left with no exit, as various efforts by the regional exchanges to modernise through the late 90s and 2000s did not yield any result.
The Bangur family itself went through a painful succession process in the early-90s, with NBIIF landing up with the Benu Gopal Bangur branch. According to NBIIF’s website, the 90-year-old patriarch is one of the promoters of NBIIF along with grandson Prashant Bangur. Latest shareholding pattern shows that Prashant and his father Hari Mohan (HM) Bangur are shareholders in NBIIF. All three also sit on the board of group flagship Shree Cement. While Benu Gopal is the chairman, HM Bangur is the managing director and Prashant is the joint managing director of Shree Cement.
Without much business, NBIIF became a holding company of sorts, owning shares in several group entities and other listed entities. Among its prized holdings were 2.44% in Shree Cement and over 15% in Shree Capital Services, a promoter group company that holds a significant stake in Shree Cement.
The move to NSE and transfer of value
In 2015, the market regulator Securities and Exchange Board of India (Sebi) gave companies listed on regional exchanges 18 months to apply to any of the national exchanges for direct listing, failing which they were supposed to give direct exit options to shareholders. This forced NBIIF to explore listing on the national bourses.
In November 2016, the stock was listed on the NSE and it started trading in December. As the company listed on the national bourse, it came under the radar of a larger pool of investors and scrutiny by independent researches and proxy advisory firms. Such a move typically improves the liquidity for the stock and ideally unlocks significant value for small shareholders. But that was not to be.
“This is galling of a group that contends to adhere to higher standards of corporate governance. Even investors of Shree Cement Limited should be aware that the promoters had mal-intent. Transparency and fairness were thrown to the winds.”
— Shriram Subramanian, managing director, InGovern Research ServicesBengaluru-based InGovern Research Services has unearthed a series of transactions involving promoter-group entities and related parties controlled by the Bangur family. These transactions appear to have taken away significant beneficial value out of the listed entity and put it in the hands of private companies of the promoters.
Two months after it listed on NSE, NBIIF sold its shares in Shree Capital Services, whose beneficial value at that time was over INR1,900 crore, to other Bangur-group entities such as Didu Investment, Newa Investment, Ragini Finance, and Mannakrishna. NBIIF’s annual report for 2016-17 showed that several other shares of companies with underlying holdings in Shree Cement were also sold during the year for total gains of INR89 crore. InGovern unearthed details of shares of eight other companies that were holding Shree Cement’s shares.
The cost of acquisition of these shares were a little over INR5.8 crore. But, at the time Shree Cement shares were trading at INR13,980 on the bourse. At this price, the value of Shree Cement shares held by these investee companies came to over INR28,125 crore and the proportional worth of NBIIF’s holding was over INR3,077 crore. If one includes value of other listed and unlisted shares held by the investee companies of NBIIF, the loss to public shareholders would be even higher, says InGovern.
No disclosures, no approvals
Despite having been listed on the NSE, NBIIF has not given any rationale for selling these shares to the promoters.There was no obvious need to exit, as NBIIF did not need the cash. New regulations introduced by Sebi and provisions in The Companies Act require that related-party transactions such as these that involve promoters should be approved by the minority shareholders. While NBIIF may claim that the valuation exercise was undertaken by professional chartered accountants, and was approved by the board, the entire exercise was bereft of transparency to minority shareholders.
The valuation reports were not placed before the shareholders, nor were the divestment of shares to promoter entities that are related parties sent for shareholder approval. There could be contention that there was no loss to the shareholders, as the sales have been affected at a price higher than the value that they carried in its balance sheet. However, this would be an incorrect argument, as the values of the unlisted companies carried in the balance sheet were much lower than the fair market value of the shares in question.
“Further, the fact that these shares have been sold to parties connected to the promoters of NBI also demonstrates the intention of the promoters of NBIIF to unjustly benefit themselves at the cost of the minority shareholders of NBIIF,” InGovern says in its report.
The proxy-advisory firm wrote to the board of NBIIF on February 9, 2021, pointing out these issues and raising concerns on behalf of minority shareholders. The board of NBIIF did not include any Bangur family member despite their 65% holding. The directors include Ashok Bhandari, Bankat Lal Gaggar, Jagdish Prasad Mundra, Riya Puja Jain, Tapas Kumar Bhattacharya, Debashish Ray, and Priyanka Mohta. Of these, Jain, Mundra, Gaggar, and Bhandari have been with the board from the time these share transactions took place. Bhandari, who first joined NBIIF board in 2000, has been recently named chairman of the company.
In a reply dated February 17, 2021, the company chose to brush aside the issues aside, saying that the “due process” has been followed and within the framework of law. ET Prime has reviewed this company response. “This is galling of a group that contends to adhere to higher standards of corporate governance. Even investors of Shree Cement Limited should be aware that the promoters had mal-intent. Transparency and fairness were thrown to the winds,” Shriram Subramanian, managing director, InGovern Research Services, says.
NBIIF continues to hold 2.35% direct stake in Shree Cement and is listed as a promoter group shareholder. At Wednesday’s close of INR29,230 a piece, this stake was worth about INR2,482 crore.
NBIIF shares closed at INR2,000 a piece on NSE giving it a market capitalisation of around INR491 crore.
Call for Sebi action
Minority investors of NBIIF asper its latest shareholding pattern include Mahendra Giridharilal, a high net worth individual, and Metricia Asia, a foreign portfolio investor, who hold over 3%. The company also had over 5,000 retail investors holding nearly17%. These shareholders would look up to the market regulator to protect their interests.
“The issue calls for a suo moto in-depth investigation by Sebi as the market regulator. Sebi needs to call for an independent audit and independent valuation of the sale of shares and determination of the correct price at which the sale ought to have been executed. The promoters should either pay the right valuation for the shares or reverse the transactions for fairness to minority shareholders,” Subramanian adds.
(Graphics by Sadhana Saxena)
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