Shree Cement holding firm's sales of unlisted shares raise eyebrows

Listed firm NBI sold unlisted cos on its books at 97% discount to promoter entities, says InGovern

A corporate governance watchdog has flagged dealings at Shree Cement’s listed holding company NBI Industrial Finance Company, which is listed on the National Stock Exchange (NSE).
 
NBI sold shares of several unlisted companies on its books around five years ago to promoter entities for only Rs 89 crore, though their fair value was Rs 3,077 crore, InGovern has alleged.
 
Although the deal came under the ambit of “related-party transaction”, it was carried out without being put to vote before minority shareholders, it said.
 
“In FY2016-17, NBI sold off shares in unlisted companies, including Shree Capital Services, another group holding company, to promoters at a huge discount of 97 per cent to fair value. (There was) No rationale for selling to promoters. There was no need to exit as NBI did not need the cash. Even today, this demonstrates the mal-intent of the promoters that have surreptitiously short-changed and perpetrated a fraud on minority shareholders. (This) Should be noted by investors of Shree Cement,” InGovern said in a note.
 
Messages sent to H M Bangur, managing director of Shree Cement, seeking his comments on these allegations went unanswered.
 
InGovern has also brought the issue to the notice of market regulator Securities and Exchange Board of India (Sebi) and has called for “urgent action.” “The issue calls for a suo motu in-depth investigation by Sebi. Such brazen fraud perpetrated by the promoters of a large, listed company like Shree Cement on minority shareholders needs to be dealt with by the regulator.”
 
Shree Cement, with a market capitalisation in excess of Rs 1 trillion, is part of the marquee Nifty50 index. NBI, on the other hand, has a market cap of less than Rs 500 crore and promoter holding of 64.72 per cent. It got listed on the NSE in November 2016. Before that, it was listed on the Delhi Stock Exchange.
 
At the end of the March 2017 quarter, NBI directly held a 2.44 per cent stake in Shree Cement and indirectly held even more through its shareholdings in Shree Capital Services and other unlisted group companies.
 
“The value of just the shares of Shree Cement held by these unlisted companies was Rs 28,125 crore and the proportionate beneficial value to NBI would be Rs 3,077 crore,” stated the InGovern report.
 
Back then, NBI sold 247,860 shares of Shree Capital Services, which held (and continues to hold) nearly 9 million of Shree Cement.
 
“Even at the lowest price of Rs 13,980 per share of Shree Cement in the last quarter of FY2016-17, the valuation of these shares would have been Rs 12,560 crore. As NBI holds 15.38 per cent shares of Shree Capital Services, the beneficial interest of NBI would have been Rs 1,932 crore,” the note explained.
 
The governance firm has said the promoters of Shree should either pay the right valuation for the shares or reverse the transactions for fairness to minority shareholders.
 
InGovern has also observed that Ashok Bhandari was on the board of NBI as independent director when the decision to sell the unlisted shares was taken. He was appointed chairman of the board last year.
 
In February, InGovern wrote a letter to the board of NBI highlighting these issues. The company, in its reply said, that “due process” was followed.
 

Under fire

• Shree cement holdco NBI listed on NSE since 2016
• Held shares of Shree Cement indirectly worth over Rs 1,900 cr
• NBI sold shares in unlisted firms in FY17
• Book gains of Rs 89 crore
• InGovern says fair value of shares was Rs 3,077 cr
• Shares sold to promoter entities without shareholder approval
• InGovern terms this as ‘fraud on minority shareholders’
• Calls for Sebi probe