SES opposes Jubilant Life warrant issue

Option for deferred part payment of warrant money gives arbitrage opportunity for institutional buyers, says advisory firm

Advisory firm Stakeholders' Empowerment Services (SES) has objected to a proposal by pharmaceutical firm Jubilant Life Sciences to raise capital through the qualified institutional placement ( QIP) route. Plan involves issue of warrants with deferred payment option. SES says such deferred part payment after 60 months puts other public shareholders at disadvantage.

The proposal that has been put up for shareholder approval through postal ballot, which ends on Sunday. The company has proposed a resolution to raise funds up to $200 million through issue of foreign/domestic securities. The resolution allows the company to raise funds by way of QIP/preferential allotment or other mode of public and/or private offerings.

In a report recommending a vote against the resolution SES said, "One composite resolution for issue of all kind of securities (debt/equity/or any other type of securities convertible into equity) making a very complicated reading for investors and hidden there is a provision which allows the allottee under QIP to get a warrant and pay for the same in 60 months. Such composite resolutions do not reflect good governance practice."

An email seeking comments sent to Jubilant Life Sciences on Friday did not elicit any response. Institutional Investor Advisory Services, another proxy advisory, recommended that shareholders vote in favour of the resolution.

The allottees of the proposed warrant issue will get option to make part payment and pay remaining funds till the expiry of 60 months from the date of allotment at price determined based on the date of Board meeting wherein the issue would be approved. Though legally compliant, SES said it was of the view that these will provide arbitrage opportunity to QIBs at cost of public non-controlling investors. SES was of the opinion that existing shareholders should have first right to participate in any capital issue. "Any other mode of capital issue should only be undertaken if the Company is in urgent need of funds," the proxy firm said, adding "The Company has not disclosed any specific reason for raising equity capital, which indicates that there is no urgent requirement of capital by the Company."

The Board of Directors are being given the discretion to decide the mode and the terms of the proposed issue. Additionally, the proposed issue may have a potential dilution effect of 8.28% of shareholding of existing non-controlling shareholders. "Considering these issues, SES recommends that shareholders vote AGAINST the Resolution," the report concluded.

SES recommended that to protect rights of non-controlling shareholders, the company should go for rights issue with right of renunciation.