Financial institutions (FIs) are having second thoughts about supporting the proposal of Associated Cement Companies (ACC) Ltd to issue share warrants on a preferential basis to the company's promoters, the Tatas.
The FIs, which hold a 26.58 per cent stake in ACC, feel the conversion price _ at which the warrants are proposed to be converted into equity shares _ of Rs 110 per share is very low.
The ACC board, at its meeting on December 8, had approved the issue of 90 lakh warrants to the Tata group on a preferential basis at a price of Rs 110 per warrant. This would enable the Tatas to raise their stake in the company from 13 per cent to 20 per cent.
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A senior IDBI official said the preference issue was "incorrectly priced" and, therefore, the institution was considering opposing the move at ACC's extraordinary general meeting, slated for January 7.
However, IDBI chairman and managing director G P Gupta said the FIs would take a decision when the issue came up for review. "Institutions will have to jointly examine the issue when the offer comes to us. We will examine the issue keeping everyone's interests in mind," Gupta said.
Sources in other FIs too said the issue of supporting the ACC preference issue and subscribing to the rights issue would be considered jointly at a later date.
An ACC spokesperson declined to comment on the issue.
IDBI sources said the institution was uncomfortable with the pricing as it had subscribed to the earlier ACC rights issue in 1995 at Rs 4,000 per share (face value: Rs 100). The Tatas, in 1995, had fully subscribed to the rights issue and also taken their extra entitlements, thus hiking their stake from 10 per cent to 13 per cent.
However, ACC sources said the company had no leeway in determining the price of the preference issue. "The price of the preferential allotment has been arrived at by using the formula prescribed by the Securities and Exchange Board of India," a company source said. "Considering the average price of the ACC scrip in the last 6 months, the price of the preferential offer would come to Rs 110 per share on a cum-rights basis."
Besides the preference issue, the ACC board also cleared splitting of equity shares of Rs 100 into shares of Rs 10 and a 1:4 rights issue at a price of Rs 55 per share.