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A group of minority shareholders of Trinetra Cement, the Rajasthan-based and listed subsidiary of India Cements, have objected to the valuation accorded to the former in the proposed merger with its parent.
They have written to the markets regulator, Securities and Exchange Board of India (Sebi), complaining about alleged discrepancies in valuation parameters and methodology.
According to these shareholders, who together own about 2.5 per cent in the company, even going by the methodology followed by the company, the value per tonne of capacity should be around $130, which is $20 higher than what is offered under the scheme.
Delhi-based Bharat Gupta, one of the complainants, said there was no justification for the value offered to the shareholders, considering the amount of assets with the company. "While calculating the valuation, based on average price paid in recent deals, they ignored an investment by Barings PE in Lafarge India that happened at $230 a tonne. That brought down the average price from $130 to $110 a tonne."
Gupta, a chartered accountant, has said in several representations to Sebi, the Union ministry of corporate affairs (MCA) and the exchanges that he challenges "both the valuation report of RGN Price & Co, chartered accountants, and the fairness opinion of Real Growth Securities, which have been considered as the basis for deciding the swap ratio for amalgamation".
He says the swap ratio of two India Cements shares for every nine Trinetra shares values the latter at Rs 10-11 crore at current prices. "Trinetra is sitting on one of the largest limestone reserves, on leased land of 66 hectares. An entire head of capital advances, with a balance of over Rs 500 crore, is not being considered at all. How can you value an entire cement plant at the price of a luxury flat in Delhi? The plant is worth at least Rs 1,100 crore, according to our calculations," he said.
Arvind Aggarwal, another shareholder, agrees with Gupta. He feels the companies have systematically managed the accounts in such a manner that the parameters going into different valuation methodologies are artificially depressed.
Gupta and Aggarwal said they also planned to register complaints with other central investigation agencies.
In a response to an email seeking comments, an India Cements spokesperson said: "The valuation of the companies has been done by independent chartered accountants. All inputs/methods that might be required for arriving at the proper valuation were considered by them before arriving at the fair value and recommending the share exchange ratio. In addition, a fairness opinion on the valuation was also obtained from a Sebi-registered merchant banker, category-1, and all such documents were sent to the stock exchanges and placed on the company's website."
While the spokesperson did not address specific issues of per-tonnage valuation and non-consideration of the item of capital advances, in response to Gupta's complaint to Sebi, Trinetra Cement said in December that one reason for exclusion of the Lafarge deal was, "The valuation of the minority stake acquired by Barings is substantially higher (over 100 per cent) as compared to other deals...the reasons attributed for such a high valuation are not known."
The letter dated December 15, with a copy marked to Sebi, further said, "We would like to clarify that in the context of determination of the appropriate share exchange ratio, it is not the absolute values but the relative values which are of relevance. The emphasis is not so much on the individual values of the companies but on the relative values, so that the share exchange ratios are and appear to be fair to the shareholders of both the transferor and transferee companies."
Adding, "We have not considered capital advances, as well as corresponding debts. Hence, the valuation is not affected in any way." But, the shareholders contend all debts and liabilities have been considered but 'capital advances' ignored.
The spokesperson added the scheme was approved by the public shareholders of Trinetra Cement, constituting 93.8 per cent of the total number of valid votes cast by postal ballot and e-voting, in terms of the Sebi circular on amalgamations. "In addition, the scheme has been unanimously approved by the shareholders present at the court-convened meeting of Trinetra Cement on March 25. The said results have already been communicated to the stock exchanges where the company's equity shares are listed and also published in the website of the company," he said.
In the filings to the exchanges, it transpired only 125 of 4,000-odd public shareholders attended the meeting. Of 1.6 million shares held by public shareholders, only 388 votes were polled; all of these were in favour of the scheme.
Aggarwal said the low turnout was a reflection of huge physical shareholding in Trinetra. "Many of these are old Indo Zinc shareholders, not tracking the developments closely." India Cements acquired Indo Zinc in 2009, through its arm, ICL Financial Services. BSE's shareholding pattern data on Trinetra showed that only about a fifth of the 1.35 million shares held by individual shareholders were in demat form.
The minority shareholders further add that the shareholder approval does not automatically clear the merger, as the court is yet to take the final call and would do so only after considering the reports from Sebi, the regional director of MCA and the official liquidator. "We hope at least one of these find merit in our case," said Aggarwal.
The spokesperson added the amalgamation "will result in a strong and effective entity (composite unit), carrying on business activities more effectively, optimum utilisation of resources and enhance the overall stakeholders' value in the long run."
