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Sterlite Industries' objective to become a major player across the entire non-ferrous metal chain in India and make its presence felt globally entails financial restructuring and foreign capital. It has already started on this path but obstacles seem to be cropping up.
Sterlite Industries' company officials must have sighed with relief when the Bombay High Court rejected the petition of the Securities and Exchange Board of India (SEBI) to stay the buy-back scheme, which was being implemented by the company. The Court has ruled that the petition had no locus standi. But the Court has also said that the petition filed by the Department of Company Affairs (DCA) had locus standi. The DCA can proceed with an appeal to a higher court. This means that the company's troubles are not yet over.
The buy-back offer which closed on June 21, 2002 was to buy-back 50 percent of equity shares (2.7 crore equity shares) at Rs. 150, Rs. 100 being paid in cash and Rs. 50 in the form of 10 percent secured non-convertible debentures redeemable 35 percent in the fourth year, 35 percent in the fifth year and 30 percent in the sixth year. The offer was announced as a scheme of arrangement and capital reduction under Sections 391, 394 and 100 of the Companies Act, 1956. Since the buy-back is for more than the prescribed 25 percent limit the rules dictated that it should have the Court's approval, which it did have. The problem lay, however, in the procedure that Sterlite adopted in implementing the scheme. Generally a company that wants to buy-back shares makes the offer to the shareholders who tender their shares to the registrars if they want to sell their holdings. Once the tender of shares is done the registrar (after considering oversubscription, if any) will send the cheques for the accepted shares and the unaccepted shares, if any. But instead of following this method Sterlite sent cheques in advance to the shareholders with a form for non-acceptance of the offer which they could fill in, sign and send to the company along with the cheque if they did not want to sell their holdings. Sterlite is not the first one to follow this method. Defending its scheme Sterlite has cited the examples of companies like Century Enka, Mather & Platt India, Hindustan Dorr-Oliver, Sierra Optima, Jai Corp. Ltd., Hardcastle & Waud Manufacturing Company, P & G Distribution Company and Mahindra-Gesco which had followed the same procedure in the past. This procedure, termed negative consent is a little confusing to the investors because they would be inclined to believe that acceptance is mandatory because cheques are sent even before they tender their shares.
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