- Wealth PMS
When you’re a shareholder of a company, you’re less influential than the promoter, of course. But with that level of control, can a promoter try to take money away from the company that you should rightfully have a say in?
Look at Amara Raja batteries. The stock’s done well, of course. But now the promoters want to get shareholder approval for the company to pay a large sum as an upfront rent for a 99 year old lease. And guess who they are paying rent to? The promoters!
Amara Raja is doing a postal ballot, with e-voting, on a proposal to take a 99 year lease on a 62 acre property from Amara Raja Infra Private Limited (ARIPL), a company wholly owned by the promoters and their families.
ARIPL is developing a 482 cr. property (in which this 62 acres is being purchased) in Chitoor, AP.
The company will pay Rs. 65 lakhs per acre to ARIPL for the 99 year lease, all of it upfront! Paying for a lease upfront is very strange (and only done when the deal is equivalent to a purchase of the property and the land will be used immediately).
And the interesting thing is: they have no need to use that land today; they are buying it because :
…it would be advantageous to take additional land at this point in time as availability of land in large parcel would be difficult and at huge cost as and when such decisions are taken.
Business Standard has noted that they had done another lease from the same ARIPL, for 10 acres, at Rs. 47.5 lakh per acre, which means this deal is a 33% increase in one month.
It seems a firm called SES has found the contract terms are loaded against the company too. And that the brand Amara Raja is owned by the company but the promoters are using it for their benefit.
If you’re a shareholder this is quite lousy. The company made about 367 cr. last year, and it does seem excessive to pay 10% of that to the promoters for what is excess land (since the company doesn’t currently have plans to expand, but is buying the land anyhow).
Effectively this is the company paying Rs. 40 cr. to the promoters to lease land they don’t currently want, and by paying all of the money upfront. It’s quite possible that the promoters want to dump the land onto the company, having found no buyers elsewhere.
If you ask us, if we were a shareholder we would vote against the resolution (though since promoters own 52% of the company it is unlikely to fail). But the fair thing would be that the promoters should abstain from voting (since they are interested parties) and to only count the votes of remaining shareholders.
We hope SEBI will take note of such deals – and there are a large number of such deals – where the promoters do things that are equivalent to using their large shareholding and operational control to move money from the company’s pocket to theirs, for reasons that don’t seem to sound genuine.