New Delhi: Corporate governance advisory firm, Institutional Investor Advisory Services (IIAS) has said that Vedanta's independent directors, at the May 18 board meeting, must articulate whether shareholders must vote in support of the delisting, and indicate a price range that they believe reflects the intrinsic value of the stock.
In a note on the proposed Vedanta delisting, IIAS has said that as in the past, this announcement too, seems to suggest, that minority shareholders are a hinderance to the promoters' ambition.
"IIAS believes, however, that the board should not take cover of regulations, but proactively guide shareholders on what it considers is the correct price at which the delisting must take place. Vedanta's set of well-established and seasoned independent directors are possibly the best placed to articulate a reasonable stance on the issue", it said.
Vedanta's board needs to guide investors and IIAS as Vedanta's independent directors have a fiduciary responsibility to guide shareholders on VRL's delisting bid.
This is in line with the practice followed in other markets. For example, it said independent directors of Essar Energy in 2014 rejected Essar Global Funds Ltd's bid to delist -- the committee of independent directors had termed that bid "opportunistic". The issues are not very different here, it added.
"Independent directors must avoid taking cover from regulation. Delisting guidelines protect the rights of minority shareholders when companies want to delist. It will be a shame if the board throws these regulations back at shareholders saying that as the price is going to be determined by reverse book-building, you decide the price" the advisory firm said.
IIAS said Vedanta's independent directors, at the May 18 board meeting, must articulate whether shareholders must vote in support of the delisting, and indicate a price range that they believe reflects the intrinsic value of the stock.
Institutional investors have a role to play in protecting the interests of all minority shareholders. Mutual funds together owned 10.9% of voting rights on March 31. There are several large shareholders too, these can together ensure that their delisting bids reflect the intrinsic value of the business, IIAS said.
IIAS said the group's past behaviour seems to suggest that minority shareholders are a hindrance to the promoters' ambition. Cash flowing from the operating companies to the holding companies has been an element of concern for shareholders, and some of the transactions have taken investors by surprise.
"To that extent, delisting the company and allowing the promoter full rein is in the longer-term interest of all stakeholders. That does not take away from the low price being offered. Investors need to take advantage of the regulatory protection and put in a bid that reflects the value of the company", IIAS said.
The delisting resolution is a special resolution: the votes cast by the public shareholders in favour of the resolution must be at least two times the number of votes cast against it. The SEBI (Delisting of Equity shares) Regulations, 2009 provide sufficient protection to minority shareholders.
IIAS said the delisting will be determined via a reverse book building process. The price at which VRL can acquire public shareholding that takes VRL's shareholding to at least 90% of the paid-up capital will be the discovered price - at which point VRL can decide if wishes to proceed with the delisting. Therefore, although the floor price is set at Rs.87.50, the discovered price - based in the bids put in by investors - will likely be much higher.