About 650,000 shareholders of state-owned miner Coal India will now have a stake in The Children's Investment Fund’s legal battle against the central government, Coal India’s largest shareholder, and directors of the company. The Calcutta High Court has approved a request by the British hedge fund to make the case representative of all shareholders. The court has also directed The Children's Investment Fund (TCI) to issue newspaper advertisements "explaining the nature and details of the lawsuit" to the shareholders.
Institutional investors, including TCI, hold some 7.3 per cent in Coal India (CIL), while companies and retail investors hold 2.7 per cent. The Centre holds the 90 per cent.
TCI has claimed Rs 2,15,250 crore from the government of India on behalf of CIL shareholders, as compensation for losses caused by its policy to price coal substantially below market prices. According to TCI, this is the cumulative loss to pre-tax profits since the IPO in November 2010.
The loss is estimated for a period starting November 2010 to March 2013, for 861 million tonnes of coal sales under fuel-supply agreements, at a price differential of Rs 2,500 a tonne. TCI is also seeking interest on this sum at prevailing commercial rates of 18 per cent an annum.
"The court has approved our request to make the case representative. It may eventually become a class action suit. The outcome of the case will benefit all shareholders," said a partner at Luthra and Luthra, the lawyers for TCI. The case names 26 defendants, including Coal India, government of India, all the firm’s subsidiaries, except CMPDI and the directors.
According to court documents reviewed by Business Standard, the case filed by TCI Cyprus Holding at Calcutta High Court is asking the compensation, citing that there is a breach of duty by the government of India and the board members of CIL which resulted in the loss. “The plaintiff is entitled to and claims such decree on behalf of defendant no.1 (CIL) at the rate of 18 per cent interest per annum,” it said.
TCI has also argued that the loss in revenue resulted in loss on its portfolio at different price earnings ratio (PE). If the coal was sold at Rs 2,500 a tonne, post-tax profits for FY13 would be Rs 65,625 crore. At a PE ratio of 13.3 times, Coal India would have been valued at Rs 8,72,813 crore. TCI's investment would have been worth Rs 8,815 crore. If the PE was 15 times, the market cap would be Rs 9.84 lakh crore and TCI's holding would be worth Rs 9,942 crore.
Current market prices of Coal India are roughly a fourth of this. Coal India shares gained 1.65 per cent to close at Rs 359.35. At this price CIL's market cap stood at Rs 2.26 lakh crore.
A top CIL official confirmed the development and said, “Since this is a representative suit on behalf of CIL shareholders, the court has directed them to publish the details in newspapers to let the public know about this. They have reached this inflated loss of revenue by citing reason of price differential per tonne compared to market prices and also the coal sale based on fuel supply agreement during this period.” While the date of hearing at the Calcutta High Court will be on December 12, the pending case at Delhi High Court will be heard on December 7. According to CIL, "the logic that TCI is giving is that as the CIL management cannot go against the government for losses suffered, TCI is doing it on behalf of all the shareholders."
Though TCI owns only 1.01 per cent of the shares in CIL, it is the largest foreign investor in the Kolkata-based coal major. According to CIL, while TCI had first filed a complaint to the board of arbitrators based on bilateral investment treaty (BIT) between India and Cyprus in May 2012, even before the gestation period of six months it approached the court.
In August, TCI had filed a writ petition in the Delhi High Court over the interference of the Centre in the functioning of CIL, instructing the firm to revise the price hike based on gross calorific value made in December 2011. The major difference that the fresh case filed at Calcutta High Court last on October 12 was the compensation factor.
TCI had also raised the scrapping of the system of fuel supply agreements claiming that it will hurt the coal major’s profit.
