TI: Kumar Mangalam Birla status quo at Kesoram

12 August 2019: Kumar Mangalam Birla continues to remain a “promoter” of Kesoram Industries Ltd, despite writing to market regulator Sebi to change his status to a public shareholder five months ago.

The chairman of $48.3-billion Aditya Birla Group holds only 300 shares in his personal capacity in Kesoram, the flagship company of the group headed by his grandfather Basant Kumar Birla, who died last month.

Manjushree Khaitan, BK’s daughter and Kumar’s aunt, is now at the helm of Kesoram, which is in the process of being split into two entities to focus on cement and tyre, separately.

An official from Kesoram Industries said the company had not heard either from Birla or the market regulator on the request. “It is a status quo,” the official told The Telegraph.

The process

Section 31A of Listing Obligation and Disclosure Regulations lays down how a promoter of a listed entity can become a public shareholder. The promoter has to make a formal request of re-classification to the listed entity, including a rationale for the same.

The board of the company will have to meet and place before shareholders in a general body meeting for approval along with the views of the director. The promoter shareholder seeking such reclassification would not be able to vote on it. Once the ordinary resolution is passed, the company will apply to the stock exchange, which will take the final decision. If a company is listed on multiple exchanges, all the exchanges will take a decision jointly.

Curiously, the letter by Birla on March 13, 2019 was written to Sebi, with a copy marked to Kesoram “for their necessary action”.

Sources said the matter might have been discussed informally in a board meet subsequent to the letter but no action was initiated. “The letter was addressed to Sebi, not to the company. Hence, there is nothing to be done by us,” the official quoted above said.

Birla’s letter had sought to explain why the letter was sent to Sebi and not to Kesoram. “The listing regulations do not provide for reclassification of promoters at the instance of the promoter. It provides for re-classification by stock exchanges, on the application of the listed company. The listed company is required to comply with the prescribed conditions and follow the procedure as laid down under the regulations. There is no provision for an existing promoter to make an application to the stock exchange for re-classification as a public shareholder in any situation. I am, therefore, filing this application, seeking my reclassification from a promoter to a public shareholder in Kesoram Industries Ltd with immediate effect, subject to your approval.”

Despite several requests and reminders by mail, phone and text messages, no one from the Aditya Birla group commented on the questions sent by this newspaper, asking whether its chairman was pursuing the request to be reclassified as a public shareholder in Kesoram.

The rationale

The letter written by Birla on March 13, 2019, to the executive director of the listing department of Sebi mentioned that he has no role to play in the affairs of the company or special rights.

“Historically, I have been disclosed as a promoter of Kesoram Industries Ltd, even though along with my family and entities controlled by us, hold less than 0.0035 per cent in Kesoram… I do not exercise any management or other control, directly or indirectly, in Kesoram or enjoy special rights of any kind therein.”

Birla cited increasing regulatory challenges in India on account of competition law, insolvency and bankruptcy code and Sebi regulations.

“With the increasing operational and regulatory complexities, I find my classification as a promoter of companies other than those of the Aditya Birla group, would have compliance challenges. Many a times, there is an impression created in the minds of regulators and other stakeholders that companies other than the Aditya Birla group, are also controlled by promoters of the Aditya Birla group. A recent example is that of the Competition Commission of India’s (CCI) approval to the acquisition of JP Cement Plants by Ultratech, a company of the Aditya Birla group because of common directorship/promoters, wherein we were served with a show-cause notice by the CCI for not declaring Century/Kesoram as jointly managed by the Aditya Birla group for the same reason,” he wrote.

He further cited compliance complications on account of Sebi (Issue of Capital and Disclosure Requirement) and IBC, 2016.

Crossholdings

Birla’s letter noted that many companies were promoted by Ghanashyam Das Birla and his brothers. Over a period of time, several groups headed by the children of G.D. Birla and his brothers were formed, to independently manage various companies.

“Some of my family members, including myself, were also declared and continued to be a promoter in few companies which are not part of the Aditya Birla group and have been managed independently,” Kumar wrote.

Two of the largest shareholders of Kesoram are Pilani Investment and Industries Corporation Ltd and Century Textiles and Industries Ltd, which hold 19.17 per cent and 3.59 per cent, respectively. After BK’s death, Rajashree Birla, mother of Kumar, became the chairperson of Pilani, while Kumar became the chairman of Century. Rajashree Birla is also the promoter of Kesoram, holding 3,250 shares in her personal capacity.

A section of corporate observers believe the market regulator would have to take a view on Pilani and Century’s shareholding before taking a call on Kumar Birla’s reclassification request. Sebi did not respond to the story.

Though rare, there has been instances when a re-classification request was accepted by the bourses. ArcelorMittal sold its share in Uttam Galva Steel and struck itself off as the promoter of the defaulting steel maker. Recently, McNally Bharat is going through a process to reclassify EMC Limited and MKN Investment Pvt Ltd from promoter and promoter group to public category. The company is seeking the shareholders’ nod by postal ballot.

The Telegraph India reported

EQUITY UPDATE – 6 JULY 2012

ASIA

China’s central bank, People’s Bank of China cut its benchmark one-year lending rates by 31 basis points to 6 per cent and its one year deposit rates by 25 basis points to 3 per cent. In other news Reuters poll showed that the Chinese economy grew by 7.6 per cent in 2Q12 versus 8.1 per cent in 1Q12, registering a straight six quarters of slowing growth. (Financial Times/Telegraph UK)

Banks in China saw heightened lending activity in May, exceeding expectations, but new loans issued in 2012 fell short of the targeted range of RMB 8 – 8.5 t. Banks gave fresh loans in the range of RMB 7.3 – 7.5 t. Chinese banks lent a total of RMB 793.2 b (USD 125 b) vs forecasts of RMB 700 b vs RMB 681.8 b in April. (Bloomberg)

China could attempt to put a maximum limit or a cap on loans at 75 percent of deposits  on top of imposition of additional requirements. A senior banking official quoted on behalf of the regulator that liquidity risk-management rules would lay more focus on the loan-to-deposit ratio as one of its measures. (Bloomberg)

Nissan Motors – Moody’s raised co.’s ratings to A3 from Baa1 with stable outlook, on back of launch of new models and rising profit margin. (Boston.com/AP)

INDIA

The Reserve Bank of India would continue to buy back FCCBs issued by Indian companies through the approval route. RBI will consider proposals from companies in the case of buyback value being at minimum discount of 5 per cent of accreted value. The central bank will conclude the buyback process by 31March 2013. (Money Control/Reuters)

FII made gross purchases of INR 2659.08cr and gross sales of INR 2229.86cr. DII gross purchases at INR 995.17cr and gross sales at INR 1198.20cr. (Business Standard)

According to Credit Suisse, RBI could cut interest rate by another 125 basis points by March 2013. The bank expects RBI to start cutting rates in October and also expects WPI to drop below 6 per cent by end of March 2013. Credit Suisse also stated that yields on 10-year government bonds to fall to 7.5 per cent next year and expects the rupee to strength to 50. (Economic Times/Reuters)

ONGC – Co is to conduct a sale of its stake in four of its coal- bed methane (CBM) blocks. The co. plans to divest around 35 percent of its stake in the blocks it owns. (Business Standard)

Retail Co.’s – Shares in co. soared after a market report that government may allow foreign direct investment in multi brand retail, after the new presidential elections later this month. (Financial Express)

Grasim Industries – Aditya Birla group to acquire Terrance Bay Pulp Inc for USD 110m. Co. would acquire a 40 per cent stake in a special entity, while the reminder would be held by Thai Rayon Public Company.  (The Hindu Business Line)

Eicher – Co. got an order for 1019 bus chassis from Gujarat State Road Transport Corporation. (The Hindu Business Line)

Kingfisher Airlines – Debt ridden airline firm won an additional grace period from lenders to come up with plans to restructure its debt and to come up with a restructure its operations. Co. to raise funds by selling non-core asset which includes its corporate headquarters in Mumbai and a villa in Goa. (NDTV Profit/Reuters/Yahoo)

 EUROPE

The European Central Bank cut interest rates to all time low of 0.75 per cent, the decision to cut rates was unanimously taken by the 23 ECB governing council members. However ECB president Mario Draghi did not discuss any ‘non-standard’ measures to counter the crisis. According to Mario Draghi the funds under ESM and EFSF were enough to cope up with the risks.  The euro declined 1.1 percent to 1.2386 to the US Dollar after the news of the rate cut. The yields on Spanish and Italian bonds increased by 21 basis points on the news today as the ECB did not convince investors by announcing more stimulus measures for Spain and Italy. (Economic Times/AFP/Bloomberg)

Bank of England increased its asset purchase program by GBP 50b, the will hike its QE stimulus policy to a total of GBP 375b over the next four months. The bank maintained interest at 0.50 per cent. (Economic Times/AFP)

Denmark’s central bank cut its interest rates to record lows to test uncharted territories. The benchmark rate was cut to 0.2 percent from 0.45 percent and the deposit rates were reduced to -0.20 percent from 0.05 percent. (Reuters)

EADS – Airbus delivered 109 737 planes in 2Q12 versus 94 in 2Q11. (Reuters)

Barclays – S&P rating agency downgraded the outlook on the co. to negative from stable, dude to the ongoing interest rate rigging scandal. (Economic Times/AFP)

 NORTH AMERICA

US Initial Jobless Claims for week ended 30 June declined by 14,000 to touch 374,000 which exceeded estimates forecast by analysts. Private sector payroll data rose by 176,000 in June over May. (Bloomberg)

The Institute for Supply Management’s index for services in the U.S declined to 52.1 in June vs 53.7 in May.  The data came below forecasts which predicted the index to decline to 53. Even though activity in the services industry grew at a slower pace, the decline would be a cause of concern, which could affect the economy. (Bloomberg)

Boeing – Co. delivered 150 planes in the 2Q12 versus 118 in 2Q11. Co. delivered 22 777 palnes, seven 747 jumbo jets, six 767s and six 787 planes. The co. also delivered 36 defense and space products in 2Q. (Reuters)

EQUITY UPDATE – 19 MAY 2012

ASIA

Graff Diamonds – Ultra high end jewellery manufacturer and retailing firm Graff Diamonds sets its initial public offering (IPO) price ranging between HKD 25 – 37 a share in its USD 1 b listing in Hong Kong. (Financial Times)

INDIA

According to RBI deputy governor Subir Gokarn, RBI will continue using a mix of intervention and administrative steps to protect the rupee. (Economic Times/Reuters)

According to ministry of state finance, Indian government will have to a make an additional payment of USD 11b to increase its voting share to 2.75 per cent from 2.44 per cent. (Time of India/PTI)

Suzlon Energy – Co. to seek extension on repayment of FCCB’s till 27 July.  The co. faces repayment of USD 200m zero coupon convertible bond and USD 25m 7.5 per cent coupon bond. Co. will use the extension period to raise USD 300m from a consortium of banks. (The Hindu Business Line)

Aditya Birla Group – Co. has acquired 27.5 per cent stake in Living Media India. (The Hindu Business Line)

State Bank of India – Co. to pitch to Moody’s for a rating upgrade. (Economic Times/Reuters)

Hyundai Motors India Ltd – Co. states that automobile sales in the FY12 period could slow down, leading to a likely growth of 6 – 8 percent. The slowdown in sales could be attributed to higher interest rates, rising prices of fuels and the slowdown in the Indian economy. (Economic Times)

Kingfisher Airlines – The income tax department initiated penalty on the due INR 269.06 tax payment and prosecutions proceedings against the co. (Economic Times/PTI)

EUROPE

According to the trade commissioner Karel De Gucht , European Commission and ECB were drawing a up contingency plan should Greece exited the common currency. In related news, according to the German Finance minister said that the turmoil fuelled by the euro zone debt crisis could last another two years. (WSJ/Reuters)

According to Spain’s central bank, The Bank of Spain, the country’s banking system witnessed a rise in value of bad loans which are valued at EUR 148 b. Mortgage loan arrears have risen to its highest in the month of March 2012 as they accounted for 8.4 percent of the total loan portfolio. Foreign institutions or investors withdrew a total of EUR 31 b over May on account of the country’s fragile economic condition.  In other news, Apnish treasury minister said that , Spanish banks had no liquidity problem for the next two years.(Financial Times/Telegraph UK)

According to MPC member Adam Posen, the UK will need more quantitative easing. (Telegraph UK)

A consortium of banks – Credit Suisse, Goldman Sachs, BNP Paribas and Itau,  are on the brink of acquiring stakes in Argentina-based oil firm YPF SA. The move by the banks comes on account of a default of one of its minority shareholder on its loan obligations after Repsol lost controlling stake in YPF. Petersen Energia, a minority stakeholder defaulted on a USD 400 m loan payment. (Financial Times)

NORTH AMERICA

U.S Federal Reserve policy makers mull conducting another round of stimulus through asset purchases through its programme Operation Twist.  The Fed had indicated that it was open to conducting stimulus measures if recovery of the economy would slow down. (Bloomberg)

U.S Payrolls data showed an increase in wages in 32 states in April while unemployment rate declined in 37 states in the US. (Bloomberg)

JP Morgan – Co.’s unit which suffered a USD 2 b trading loss is expected to hold a portfolio worth USD 100 b of risky and complex asset-backed securities and structured products. The co.’s chief investment officer (CIO), holds these positions in addition to the portfolio of risky credit derivatives. The firm’s non-vanilla portfolio of investments is expected to be valued at around USD 150 b. The co.’s CIO holds approximately GBP13 b or around 45 percent of the total UK-based Residential mortgage backed securities. (Financial Times)

Hewlett-Packard – Co. plans to cut almost 30000 jobs in the coming few months with the biggest reduction in its U.S operations. (Economic Times)

Yahoo Inc – Co. is set to sell about half of its stake in China’s e-commerce service provider Alibaba Group Holding Ltd. The co. would reduce its stake by half by selling about 20 percent of its stake in Alibaba which is valued at USD 7 b. (Bloomberg)

GLOBAL EQUITY UPDATE – 16 MAY 2012

GLOBAL

According to OECD the unemployment rate in advanced economies stood at 8.2 per cent in March, at the same level as in February. Approximately 45m people were unemployed in the OECD region in March 2012, which was up 0.8m from March 11 and 14.1 from March 2008.

  • Euro Area unemployment at 10.9 per cent, up 0.1 per cent.
  • Spanish job losses at 24.1 per cent, up 0.3 per cent.
  • US unemployment at 8.1 per cent vs. previous 9.1 per cent in August 11. (Economic Times/AFP)

 ASIA

Korea Gas Corp – Co. is to partner with Royal Dutch Shell plc on an LNG project in Canada. The project involves construction of an LNG terminal at Kitmat in British Columbia, Canada which is expected to have a capacity of 12 m metric tonnes of output. Co.’s also tie up with China National Petroleum Corp, Mitsubishi Corp and Gail India Ltd. (Bloomberg)

INDIA

India’s government stated that it would reduce its oil purchases from Iran by 11 percent. Political pressures from the United States over sanctions imposed on Iran on its disputed nuclear programme were the reasons on which the Indian government acted. India expects to import around 15.5 m metric tonnes of crude oil from Iran in FY12-13. (Straits Times)

Northern Iron – Australian mining firm rejected a takeover bid from the Aditya Birla Group of an offer to acquire the co. in a price range of AUD 1.28 – 1.35 a share. Northern Iron rejected the approximate USD 500 m offer by citing lower valuations and that it could study an improved offer from Aditya Birla group. (Economic Times)

SBI – State lender SBI will finance 70 percent of the Damodar Valley Corp.’s thermal plant project called Bokaro Thermal Power Station, expected to produce output of 500 megawatts. SBI will provide INR 1400 cr by itself while SBI, alongwith a consortium of banking institutions would contribute INR 2400 cr collectively. The project is expected to commence operations from April 2014.  (Economic Times)

Essar Energy plc – Co. has refinanced a USD 450 m short term loan which was due December 2012. The firm will have a fresh USD 300 m 3-yr loan facility and a USD 150 m cash facility. (Economic Times)

ONGC Videsh Ltd (OVL) – Overseas arm of ONGC Ltd saw declining output from its oil and gas properties located overseas for FY11-12 period. The firm’s output declined from 9.448 m or 188,960 barrels of oil to 8.753 m tonnes or 175,000 barrels of oil a day on a y-o-y basis. Geo-political situations in Syria and Libya affected its output. (Economic Times)

Bharti Airtel – Co. is being invested for money laundering under Prevention of Money Laundering Act, 2002 (PMLA)

Tata Motors – Co. global sales remained flat in April at 87,377 units over the same period last year. (Indian Express)

EUROPE

Greece could face a fresh round of elections as leaders failed to agree to form a government. Talks of forming a coalition failed as the anti-austerity Left Coalition party Syriza refused to support austerity plans. The elections will be held in June. Global markets ended lower and investor sentiment was affected on account of the inability of Greece to form a new government. (Financial Times)

Greece will make a timely payment to bondholders due on the 15th of May 2012. The country would repay about EUR 430 m (USD 552 m). (CNBC)

The Italian banking association ABI called Moody’s downgrade of 26 banks an ‘attack on Italy’ in response to Moody’s decision earlier yesterday. (Straits Times)

Russia’s GDP came in at 4.9 percent vs expectations of a growth of 4.1 percent vs 4.8 percent a year ago. The index of consumer goods and services for April saw a rise of 0.6 percent over March 2012. (Central Statistic Office, Russia)

Repsol YPF SA – Co. has proceeded with litigation against the Argentine government for its nationalization of YPF SA. The government seized a 51 percent state in YPF which is under government administration since 16 April 2012. The stake of Repsol in YPF was reduced to 6.4 percent which led to violation of investment guarantees under the treaty between the two countries. Repsol is seeking compensation of USD 10.5 b for damages and expropriation. (Financial Times)

EUROPEAN EARNINGS

Thyssen Krupp – Co. reported 1HY12 loss of EUE 1.1 b vs net loss of EUR 1.8 b a year ago. The co. ramped up operations at its Brazilian and U.S steel mills which lowered losses arising from substandard construction work and delays. The co. is now considering selling these operations to minimise losses further. The co. expects a marginal increase in EBITDA for 2HY12 vs adjusted EBITDA of EUR 1.8 b a year ago. (Financial Times)

VimpelCom – Russian telecom firm’s 1Q12 net income declined 36 percent to USD 318 m on account of higher tax charge, rising borrowing costs and lower currency rates. However, the co.’s subscriber base grew 12 percent to 209 m customers on growth in Asia and Africa which offset declines in Russia. Vimpelcom earns around 40 percent of its revenues from Russia. Russian division’s EBITDA was higher by 9 percent to USD 915 m on a y-o-y basis. Co.’s revenue for 1Q12 excl. acquisitions was at USD 5.6 b vs USD 2.7 b a year ago. (Financial Times)

NORTH AMERICA

Boeing  – According to co.’s CEO the demand for commercial planes was growing and co. was on track to build 10 787 Dreamliners per month by end of next year.  (Reuters)

Cheaspeake Energy – S&P rating agency downgraded co.’s credit rating to ‘BB-‘ vs. previous ‘BB’, due to lack of corporate governance practices, concerns over loan covenants and likelihood of wider gaps between operating cash flow and capital expenditures. Co. will boost borrowing to USD 4b vs. previously planned USD 3b. (Reuters)