Govt gets first right on 50% of De Beers equity

Disinvestment may be off the government's agenda, but the Centre wants to ensure that it does not lose its grip on even joint venture companies.

Under pressure from the Centre, De Beers India (DIPL) would give the Union government and De Beers Centenary Mauritius (DBCML) the first right to subscribe to 50 per cent of any additional equity it wants to raise in future.

The condition is part of a shareholders agreement worked out by DIPL and the Hindustan Diamond Company (HDC). The latter is picking up 26 per cent stake in the diamond major's mining and exploration subsidiary.

Legal experts said such a clause was not normally part of the shareholders agreement and that in most cases, the first right to subscribe was offered to only the promoter companies and not to the tier-II shareholders, which in this case were the government and DBCML.

HDC, a 50:50 joint venture between the Indian government and the De Beers group, is the largest supplier of rough diamonds to small and medium manufacturers and exporters of polished diamonds in India.

Officials said that the clause was essential since the government did not want its equity to be diluted at a later late. Besides, it will also ensure that the government is not denied the right to increase its holding as a shareholder in one of the parent companies, said an official.

"If DIPL proposes any further issue of equity shares to its shareholders in order to fund mine development, construction and operating costs as in clause 13.5 and if HDC is unable to make its pro-rata contribution, then the government of India and DBCML, as shareholders of the company, shall have the right to subscribe for 50 per cent of any additional equity shares in DIPL offered to HDC," said the shareholders agreement.

Interpreting the clause, a corporate lawyer said it could also mean that in case HDC did not have resources to put in additional equity in DIPL in future, the government, as a shareholder of HDC, could put in money on its behalf.

HDC has funded the current buy from its surplus. The HDC board had last month cleared the shareholders agreement and was now awaiting a formal approval from the government.

It does not require a cabinet clearance, as technically, HDC is not a government-owned company.

The share subscription and the shareholders agreement to be entered between Hindustan Diamond, De Beers India, De Beers Mauritius and De Beers Mauritius Holdings will be for expanding and for mining of rough diamonds in India.

HDC, with a turnover of Rs 991.11 crore in 2004-05, was promoted in 1978 with a view to providing rough diamonds particularly to the small and medium exporters from the Diamond Trading Company of London, the marketing arm of De Beers.