Call and put may hit cos' plan to buy govt's residual pie
Reliance, Tatas and Suzuki may not find it easy to buy the residual stake in IPCL, VSNL and Maruti respectively, given the controversy surrounding the government’s call and put options.
By Gunjan Pradhan Sinha, TNN |
NEW DELHI: Reliance, Tatas and Suzuki may not find it easy to buy the residual stake in IPCL, VSNL and Maruti respectively, given the controversy surrounding the government’s call and put options.
The department of disinvestment has now asked for the law ministry’s views to get a clearer picture before it can allow sale of residual stake in the other companies. This follows the deadlock over the Balco-Sterlite issue where the sale of residual stake has been put on hold.
‘Call and put option’ while being used extensively in the West is not permitted under the Indian law. The attorney general of India, Milon Banerjee, had brought to the government’s notice that as per the Companies Act 1956 and Indian Contract Act 1872, the provision of the valuation date and call option in the stake sale agreement does not hold.
As a result, in all disinvestment cases, where the government does have a residual stake, the companies may not be able to exercise the call option by way of which they have the right to ask the government for the sale of the residual stake.
Call options allow buyers of stocks or bonds or commodities the right to buy a specified number of shares on or before a pre-specified expiry date. While there are two kinds of options — European and American — it is the former that has been adopted in selling the residual government stake in public undertakings. According to this, the buyer can only exercise the right to take up the option or let it lapse on the expiry date.
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The call option has been exercised in the case Hindustan Zinc where Sterlite Industries bought the government’s residual stake of 26% for more than Rs 440 crore. A majority of the 11 PSUs and 19 hotels divested so far have the call option incorporated in the residual stake sale agreement.Download
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