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Shareholder rights

As a shareholder, Templeton Asset Management has raised some good questions about the Vedanta group’s consolidation plans. It is concerned that the amalgamation of Vedanta Aluminium into Sesa Goa as part of the merger plans within Vedanta Resources will create a sizeable debt overhang for Sesa Goa without bringing in any major benefit, as the two companies operate in different sectors. Since the deal was announced in February this year, there is a reasonable ground to question why it took the investor such a length of time to come up with the observations. But as Sesa Goa has called for a meeting of its shareholders on June 19 to vote on the merger, the questions raised by Templeton will be topical. The asset management company has a 13% shareholding in Sesa Goa.

In India, shareholder activism despite loads of reports by committees was strikingly absent till recently. While companies have faced on and off objections from dissenting shareholders, they have been able to set aside those as the number of shareholder who raise them were minuscule to make any impact. But the entry of institutions holding sizeable shareholding into the arena has changed the situation. The sizeable chunks of voting rights they hold has made the company managements keen to address the issues they raise. The level of expertise with which they analyse the topics to be voted on help the retail shareholders discern the issues far more clearly. The dispute raised by The Children’s Investment Fund against Coal India signing of fuel supply agreements with companies at a lower than market price is a good example of this trend. Escorts’ plan to merge three group companies with itself that raised the promoter families voting rights to 41% despite a direct shareholding of only 12% was also objected to by an institutional investor—Institutional Investor Advisory Services. But despite the rise in activism, the impact will take time to follow. It also comforts the retail investor into mutual funds and other that their fund managers are willing to be unpopular.

In that context, the issues raised by Templeton have already served their purpose. Irrespective of which way the decision will be made, the concerns will remain valid.

Source: The Financial Express

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