Nalco, STC buyers will need govt approval for ‘big’ investments

NEW DELHI: After introducing stricter conditions in the shareholders’ agreement for use of cash left by the government in Engineers India, the divestment ministry is inserting similar clauses in the transaction documents for State Trading Corporation and Nalco.
In the case of Nalco, the new management would need affirmative voting by the government if it proposes to invest any amount exceeding 5% of the net worth of Nalco in any other company.
The net worth is defined as the sum of the equity capital, reserves and surplus of the company. Similarly, the acquirer of STC would have to seek government’s affirmative voting if the proposed investment exceeds 10% of the net fixed assets of the company.
The disinvestment ministry decided to introduce clauses on use of cash left by the government in divested PSUs after the Tatas’ decision to invest Videsh Sanchar Nigam money in Tata Teleservices blew into a big controversy.
Until recently, investments made in good faith by the new management of a disinvested PSU did not have to be approved by an affirmative vote of the government. A resolution at the board meeting and compliance with section 372A of the Companies Act, ’56 was sufficient.
Although there was some resistance, initially, to the introduction of such restrictions, the government finally felt it was necessary to introduce such provisions to avoid any scuffles between strategic investor and a government department.
In the case of Engineers India, the shareholders’ agreement stipulates that any investment which involves a sum in excess of Rs 50 lakh would need to be approved by the government nominee through an affirmative vote.
The STC shareholders’ agreement is close to being finalised, while, in the case of Nalco, the first draft is under circulation. Bidders for Nalco are required to submit their comments on the draft documents by Monday.
The restrictions would cease to be binding on the new management once the government exits the company by selling its residual holding. The government is offloading 65% in STC to the strategic partner, while the strategic partner will get 29.15% in Nalco. In both cases, the government holding will stand reduced to 26% after disinvestment.