A proposal by Axis bank to increase the number of employee stock options (Esop) in line with the increase in its capital following its Rs 6,000 crore qualified institutional placement has hit a shareholder roadblock.
The special resolution to enable Axis Bank to issue Esops up to 10% of its post-QIP share capital fell short of the requisite 75% mark. The resolution got 169.28 million or 71.71% votes in favour and 66.77 million or 28.29% votes against.
A senior official familiar with the development said, “Some foreign investors have mandates to oppose all such proposals to hike Esops. In Axis’ case, since the voting rights of SUUTI (Special Undertaking of UTI) were capped at 10% due to a Banking law provision, the resolution failed.”
SUUTI holds shares amounting to 22.77% in Axis. However, as on December 14, the cut-off date for the postal ballot, a provision in the Banking Regulation Act restricted its voting rights at 10%.
“Section 12(2) of the Banking Regulation Act, 1949, provides that no person holding shares in a Banking company …exercise voting right on poll in excess of 10% of the total voting rights of all shareholders of the banking company,” the bank said in a foot note to the postal ballot results.
SUUTI holding was 97.22 million shares (22.77%) as on 14.12. 2012 (cut-off date) and have exercised voting rights equivalent to its holding. But due to the Banking law provision only 42.69 million votes (10%) were taken into account.
While this did not affect the first three resolutions, the Esop resolution failed to gather the requisite three-fourths majority as it was opposed by some institutions. LIC and other state-owned insurers own close to 13% in the company. FIIs own close to 35% with Vanguard, HSBC, Centaura, EuroPacific Growth fund and Genesis holding over 1% stakes.
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If the entire SUUTI votes were counted, the resolution would have passed with a majority of 77.02%. While the postal ballot notice was issued on December 17, the results were published on January 28.
Days after the postal ballot notice, the Parliament amended the Banking Regulation Act empowering RBI to increase the ceiling on voting rights from 10% to 26% in a phased manner. The above amendment was notified and came into effect on January 18.
Axis Bank said that following this, it has written the Reserve Bank of India ( RBI) seeking a clarification as to whether the voting rights of SUUTI has been expanded and to what extent.
“As and when the necessary clarification is received from RBI, necessary alteration in the result of voting on Resolution 4 will be made, if required and depending thereon the said resolution will be declared as approved or falling short of requisite majority,” the bank said in a statement on Monday.
As part of its plan to raise its share capital through qualified institutional placement (QIP) route, Axis Bank had put four items for voting by shareholders through postal ballot. Of these, first three items related to the increase of authorised capital to Rs 850 crore, to raise Tier - I capital of the Bank by issue of equity shares not exceeding 45.8 million equity shares through GDRs / QIP issue and Preferential issue to promoters of the Bank.and proposal to raise capital through QIP and other enabling resolutions.
The fourth item included a special resolution to enable issue of Esops up to 10% of the enhanced share capital. “RESOLVED FURTHER THAT the total number of options to be granted under the Scheme shall not exceed 10% of the paid-up share capital of the Bank post allotment of equity shares pursuant to the resolution at item No. 3 of this postal ballot notice dated 17th December, 2012,” it said. The resolution also sought to empower the Managing director and CEO or the remuneration committee and the human resources department to implement such scheme.
According to the annual report of fy 2012, the Bank’s shareholders approved plans for the issuance of stock options to employees in February 2001, June 2004, June 2006, June 2008 and June 2010. As of 31st March 2012, 24,368,087 options had been exercised and 11,428,248 options were in force.
SLIP between lip and Esop
* Axis Bank sought shareholder approval for increasing Tier I capital
* Sought to issue up to 45.8 million shares through QIP
* Wanted to raise Esop limits to 10% of post-issue capital
* Special resolution to enhance Esops falls short of three-fourth majority
* SUUTI cast 97.22 million votes in favour, but only 42.7 million counted
* SUUTI voting curtailed due to RBI cap of 10%
* Axis Bank has written to RBI to know if the cap has been raised
If entire Suuti votes are counted, the resolution would pass through