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It said the company had the capacity to dole out such dividends and enumerated several reasons in a letter addressed to the directors of the company. “CIL has close to Rs 65,000 crore of cash, which is equivalent to 30% of its market capitalisation. This proves lack of capital discipline,” Oscar Veldhuijzen, partner, TCI said in the letter released to mediapersons on Tuesday.
A CIL director, whose name figured among the addressees of the letter, said he cannot comment as he was yet to see the contents of the letter. CIL chairman SN Rao did not answer calls on his mobile phone.
The letter, which assumes significance coming at a time when India is hosting British Prime Minister David Cameron, is the latest in a series of charges leveled by TCI against the board of CIL. Over the past one year, the activist fund, , which owns over 1% in the miner, has opened several fronts against including invoking bipartite investment treaties and moving Calcutta High Court against the alleged underpricing of coal.
CIL’s largest shareholder the union government (90%) has been subverting the authority of the company’s board on several matters and has forced It to act in a manner that has resulted in losses to minority shareholders, the fund had alleged in the past.
According to TCI, the free cash flows of CIL before dividends including all capital expenditure was in line with net profits and hence there is no need for additional cash to be held on CIL’s balance sheet.
CIL’s cash balance should be used for higher dividends as well as buy backs, TCI said. The fund wants CIL’s cash chest to be used for higher dividends as well as share buybacks. “Even When CIL pays out 100% of profits in dividends there is ample room for buybacks and /special dividends,” the fund said.
It blamed the board of the company for failing to deliver decent returns to the share holders since listing in 2010. “Its share price has been basically flat since listing, and this is due to your mismanagement of resources, most specifically capital,” Veldhuijzen said in the letter.
“We believe that the directors are in breach of their fiduciary duties by hoarding an absurd amount of cash that is far above any realistic business needs. Such breach is in addition to those breaches already set out in the particulars of claim filed in High court of Calcutta,” he added. Coal India shares shed 1.35% on Tuesday to close at Rs 338.80.
