On Wednesday evening Swiss cement major Holcim announced
ownership restructuring of its Indian operations. In short, Holcim pared its
economic interest in ACC from ~50% to ~30% by effectively transferring ~20%
economic interest to minority shareholders of Ambuja Cement at ~20% premium to
the current market price.
In consideration Holcim got Rs35bn in cash and ~10% additional
economic interest in Ambuja Cement. The deal apparently has no tax or duty
payout, as it is effected through Mauritius based entity and therefore enjoys
the benefits of DTAA (Double Taxation Avoidance Agreement).
The investors, analysts and commentators are crying foul, as
they feel that minority shareholders have been shortchanged by Holcim and
investment case for both the Indian entities has been seriously damaged.
In our view, the deal (a) does disregard the interests of the
minority shareholders of Ambuja Cement; and (b) may erode value of ACC minority
shareholders in due course as the stock get de-rated due to likely lower focus
from parent entity.
Nonetheless, the deal prima facie appears within the four walls
of the extant legal and regulatory framework of the country.
While refraining from commenting on the morality of the deal, we
would certainly like to remind the institutional investors and analysts who are
crying foul over this deal that only a few months ago they had lambasted the
government over implementation of GAAR (General Anti-(tax) Avoidance Rules).
Though the initial protests were related to retroactive
implementation, they were mostly convinced that implementing GAAR would be
detrimental to the financial markets and therefore investors’ interest. They
pressurized the government to defer the implementation.
In our view, this deal structure would have been very different
if GAAR was in force as Holcim might have to shell out tax on sale of 20%
economic interest in ACC.
In our view, this will certainly be not the only instance where both
minority shareholders as well exchequer are shortchanged. We may see many more
such deals given the vulnerability of our government. Watch out for
notification of relaxed FDI norms in telecom etc. In our view, presently the
government is not in a position to do anything that may adversely affect the
interest of foreign investors. In any case, even if it wishes, it cannot do
anything till next July when the next regular budget will be presented by the
new government.
This will not only severely hit the already feeble confidence of
equity investors in India, but also have long term policy implications.
As we highlighted
yesterday, instead of playing the game of cat and mouse over every news item,
policy action, corporate action – investors, particularly institutional
investors, should evaluate the situation on the basis of conceptual framework
of finance and economics.
Thought for the day
“History will be kind to me for I intend to write it.”
- Winston Churchill (1874-1965)
Word of the day
Grammatology (n):
The scientific study of systems of writing.
(Source: Dictionary.com)
Shri Nārada Uvāca
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