Holcim backs off, to dilute royalty rate demand

Last Updated: Wed, Dec 12, 2012 21:32 hrs

Swiss cement major Holcim has decided to back off from its earlier plan to charge royalties for technology transfer from its Indian subsidiaries, ACC and Ambuja Cements, at a higher rate. The move follows independent directors’ resistance at board meetings in October.

According to a source close to the development, Holcim has decided to charge as royalty around one per cent of sales, or around Rs 100 crore, from each company, instead of the planned two per cent that would have translated into about Rs 500 crore from ACC and Ambuja Cements together. The proposal would be sent to the respective boards at the next meeting and directors were expected to clear the proposal, the source said.

In October, independent directors of both companies had sent back the proposal for higher royalty to the management, saying the proposal was not in the interest of minority shareholders. Holcim, which holds a little over 50 per cent in the two companies, had sought to raise the royalty rate from 0.5 per cent of sales.

An email to Holcim did not elicit any response till going to press but a member on the board of one of the companies said a middle path was being worked out and the outgo would not rise by much.

The lower outgo of royalty would be cheered by the two Indian cement firms’ investors, who had objected to an increase in royalty before the October board meet. In a note to its institutional investors, foreign brokerage Macquarie had questioned Holcim’s move. Besides, ACC had last financial year paid Holcim Rs 57.3 crore, almost 0.5 per cent of its revenue, as training, technical know-how, market survey and management fees, it had said.

Veteran corporate lawyer M L Bhakta and economist Omkar Goswami — independent directors on Ambuja Cements’ board — had sought more details on the nature of technology being transferred by Holcim to its two Indian subsidiaries. Company insiders said the matter was referred to an auditor when the independent directors raised questions, after which the Swiss company agreed to charge less.

After the Holcim episode, many investor associations have asked multinational companies to seek shareholders’ approval as a special resolution at shareholder meets to raise royalties from their Indian arms. They say higher royalties are not in the right spirit of governance.

"When the promoter is hoping to benefit from the company at the cost of other shareholders, it should be at least be put up for vote as a special resolution requiring 75 per cent approval,” said Shriram Subramanian, founder and managing director of InGovern Research Services Pvt Ltd, an independent research agency which gives advice to institutional investors on corporate governance issues.

More from Sify: