Tata Tech shareholders oppose preferential allotment to group entities

Ashish Rukhaiyar
Mumbai, 29 April 2011

It is always said that the biggest virtue of an unlisted company is the absence of a large number of shareholders to deal with. However, an unlisted company of the Tata Group is realising that it is not always the case, and even a company that is not listed on the stock exchanges has to face shareholder resistance.

Tata Technologies, an unlisted company from the Tata stable, intends to raise around Rs 141 crore through a preferential allotment of shares to Alpha TC Holdings Pte and Tata Trustee Company, both parts of Tata Capital group. The board of the company has decided to do the preferential allotment at Rs 251 per share.

While minority shareholders, who bought the shares from the company employees, have no issue with the placement, it is the price that they are opposing.

Shareholders allege that the shares are being offered at such a low price only to benefit the two Tata group entities. It is also much below the price at which the shares are traded in off-market transactions, they add. One of the shareholders has even written a letter to Ratan Tata early this month.

"The company's shares are being traded in the range of Rs 450 to Rs 500 and the board wants to place the shares at half that price," said a shareholder who did not wish to be named. "The company says it has got the valuation done from a merchant banker, but if one looks at the growth trajectory of the company, then it does not look convincing," he said.

According to the company's annual report for 2009-10, the earnings per share have increased eight times from Rs 3.07 in 2005-06 to Rs 24.33 in 2009-10. The net profit in the same period has grown from Rs 11 crore to Rs 91 crore. The revenues have also more than doubled from Rs 545 crore to Rs 1,098 crore. “We do not wish to comment. The company has formally responded to the shareholder,” said the company spokesperson in response to an email query sent on Wednesday."

The placement at Rs 251 per share pegs the enterprise value of the company at Rs 940.37 crore," said another shareholder. "To put things in perspective, Tata Technologies acquired INCAT International Plc in 2005 in an all-cash deal of Rs 411 crore. So, should we believe that the current value of the company is not even twice the acquisition cost of INCAT six years back," he said.

An extraordinary general meeting (EGM) of the company is scheduled on April 30 to pass the resolution related to preferential allotment of 5.62 million equity shares to the two Tata Capital-managed entities. The board had put forth the same proposal in their previous EGM last March and then in its annual general meeting (AGM) in July 2010.

Interestingly, the company has said the two entities have been identified and selected after discussing and negotiating with various investors.

"Based on such discussions, the directors have identified Alpha TC Holdings Pte Ltd and Tata Capital Growth Fund – I, part of Tata Capital Group, as the optimal investors in the company in terms of price, level of governance rights and contribution to the management of the company," said the company EGM notice.

It is also believed that during one of the shareholders' meetings, chairman S Ramadorai had assured minority shareholders that he would consider their demands. In the AGM, minority shareholders demanded a rights issue instead of a preferential allotment to select entities. They even said that a rights issue at Rs 251 per share would be acceptable to them.