This time, the department of disinvestment (DoD) deserves some appreciation. It took steps to ensure a good portion of the money was raised in the first half of the year, avoiding a later 11th hour rush. And, ensured there was not too much gap between announcement of the Indian Oil Corporation (IOC) share sale and its implementation, thereby eliminating short-sellers.
It was bad luck that Monday turned out to be the worst trading day in the Sensex's history. The government obviously had to fall back on its Rock of Gibraltar, the Life Insurance of Corporation of India (LIC).
Now, let us imagine the department had done this sale, say, a week earlier. What would have been the response from global investors and other local private institutions?
Would the amount of shares taken by LIC have come down? Then, what are the chances of the mammoth Coal India offer for sale, which is going to be the main agenda for DoD in the second half?
The government would want to sell us the story that, but for the Chinese crash-induced volatility, the Rs 9,400 crore IOC issue would have been lapped by foreign institutions. There are reasons to believe otherwise.
In August 2014, four independent directors (IDs) of IOC were asked to step down. This was followed by removal of IDs appointed by the previous government in various public sector undertakings. In an unprecedented move, the government defeated its own resolutions in the Coal India annual general meeting (AGM) to ensure that the IDs perceived to be loyal to the previous regime did not continue in office.
This has created a situation where both IOC and Coal India, among many others, are functioning with boards of directors in violation of Clause 49 of the listing agreement. For over a year.
The annual report of Coal India, whose AGM is on September 23, is littered with references to the absence of IDs. Both the secretarial auditor and statutory auditor have 'emphasised' how their absence was affecting the functioning of the audit committee and remuneration committee of the company. The audit committee was headed by the government nominee, a violation of both the Companies Act and Securities and Exchange Board of India (Sebi) norms. The committee on corporate social responsibility could not be constituted at all.
“Company has informed MOC (ministry of coal), the appointing authority, for appointment of the requisite number of IDs,” was the stock response of the company in response to these audit remarks.
Proxy advisory firms such as Institutional Investor Advisory Services have slammed the company. Yet, not one of the resolutions being put up in the Coal India AGM relates to IDs.
What is happening inside these behemoths that warrants keeping out of IDs? Who will the shareholders hold responsible if something wrong gets revealed later? What message does this send to global investors about the regulatory regime and rule of law in India? Why is Sebi a silent spectator? Will any blue-blooded fund manager worth his risk management system touch stocks of companies that come with so many red flags?
Corporate governance is an important investment parameter for long-term investors such as pension funds. They are not going to fall for flowery sales talk by merchant bankers in road shows, when the annual report is full of red marks. How, then, then the Rs 21,000-crore sale go through? Without it, how will the DoD get to its lofty FY16 target?
Don’t worry, it has the Rock of Gibraltar.
