Monthly Newsletter

March 2013

Governance Watch
Monthly Newsletter

Listed companies non-compliant with minimum public shareholding norms

In June 2010, the SCRR Rules were amended to the effect that all public companies, listed or proposed to be listed, shall mandatorily be required to have at least 25% public shareholding (with the exception of PSUs which needed to have at least 10% public shareholding). Existing listed companies with public shareholding less than 25% were given three years to comply with the minimum public shareholding limit i.e. by June 2013 and PSUs were given time until August 2013. As the deadline for compliance approaches, promoters of Indian listed companies have been clamoring to offload their excess shareholding through various routes to comply with the revised norms prior to June 2013. It is only because the majority opinion will always be opposed by some that our knowledge and understanding progress. Friedrich Hayek Inside this Issue: SEBI had allowed companies to take either one of the routes (viz., follow-on offering, offer for sale by promoters (OFS), institutional placement program (IPP), bonus/rights issue excluding the promoters) to comply with these requirements. Any company that wanted to take any other route than those prescribed by SEBI had to take the regulators permission before doing so.

More than 25 of the large/mid cap listed companies have already complied with the revised norms in the last one year. Given the run-up in stock prices towards end of last InGovern Analysis: Listed year and relative ease of use of the OFS process compared to other prescribed methcompanies non-compliant ods, most companies opted for the OFS route for complying with the SEBI norms, with minimum public prominent among them were companies such as Reliance Power, Adani Power, Jaipshareholding norms rakash Power Ventures, DB Corp, NTPC, NMDC and Oil India. However, a few companies such as Godrej Properties and Godrej Industries opted for the IPP route. GamQ&A with Shriram Subra- mon Infra opted for the bonus issue route given very low excess promoter shareholdmanian: Socially Responsi- ing whereas Wipro opted for the restructuring/demerger route post permission from ble Investing SEBI. The more creative ones like Gokaldas Exports and Gillette India have tried to prune their excess shareholding by reclassifying their existing promoters as non promoters, which of course SEBI has objected to. However, the Gillette case is still subjuList of 35 InGovern vote recommendation reports dice as on date. Many companies have also opted for a combination of these routes to published in February 2013 comply with the revised requirements. However, based on shareholding pattern as of December 31, 2012, our analysis of the top 500 companies of the BSE500 index suggests that there are 40 companies yet to be compliant with the minimum public shareholding norms. Out of this there around 8 Some interesting Tweets in are public sector units and 32 are private companies. Out of the 32 private companies, 5 of them are companies that got listed with a post issue capital of more than Rs 4,000 February 2013 crores and hence have three years post listing to adhere to the revised norms. 10 of these companies are listed subsidiaries of MNC firms. The total value of stocks that About Us need to be diluted by all the remaining companies prior to August 2013 amounts to approximately Rs 17,494 crores, out of which Rs 13,210 crores need to be offloaded by We are in the News! promoters of private companies (including Rs 3,246 crores by listed subsidiaries of MNC companies) and the remaining Rs 4,284 crores need to be offloaded by public sector units. Upcoming Meetings: March 2013
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Monthly Newsletter

Listed companies non-compliant with minimum public shareholding norms

List of companies which need to comply with minimum public shareholding requirements:

Name Private Sector Companies Wipro DLF Adani Ports and Special Economic Zone Adani Enterprises Sun TV Network JSW Energy Tata Communications Jaypee Infratech Jet Airways India Fortis Healthcare Essar Ports Bombay Rayon Fashions OMAXE Mahindra Holidays & Resorts India Puravankara Projects Tata Teleservices Maharashtra BGR Energy Systems Listed MNC Subsidiaries Oracle Financial Services Software Berger Paints India Gillette India 3M India BOC India AstraZeneca Pharma India Novartis India Fresenius Kabi Oncology Thomas Cook India Timken India

Mkt Cap (Rs. Crs.) 110,576 47,011 29,220 24,553 16,883 9,775 6,508 6,111 4,376 4,040 3,765 3,265 2,602 2,328 2,145 1,727 1,496

Promoter Holding (%) 78.29 78.58 77.50 77.23 77.00 76.72 76.15 83.27 80.00 81.48 80.30 93.15 89.14 82.69 89.96 77.72 81.13

Offer Size (Rs. Crs.) 3,638 1,683 730 548 338 168 75 505 219 262 200 593 368 179 321 47 92

Date to Comply Jun-13 Jun-13 Jun-13 Jun-13 Jun-13 Jun-13 Jun-13 Jun-13 Jun-13 Jun-13 Jun-13 Jun-13 Jun-13 Jun-13 Jun-13 Jun-13 Jun-13

24,712 6,685 6,468 4,174 2,482 1,958 1,863 1,858 1,056 946

80.31 75.54 88.76 76.00 89.48 90.00 76.42 81.00 87.10 80.02

1,312 36 890 42 359 294 26 111 128 47

Jun-13 Jun-13 Jun-13 Jun-13 Jun-13 Jun-13 Jun-13 Jun-13 Jun-13 Jun-13

Public Sector Companies MMTC 30,515 Neyveli Lignite Corp 11,912 Hindustan Copper 10,524 National Fertilizers 2,990 State Bank of Mysore 2,734 HMT 2,543 Rashtriya Chemicals & Fertilizers 2,427 State Trading Corp Of India /The 1,197 Total Private Sector Companies Size to comply by June 2013 (Rs. Crs.) Total Public Sector Companies Size to comply by Aug 2013 (Rs. Crs.) Total Size to comply by Aug 2013 (Rs. Crs.)

99.33 93.56 94.01 97.64 92.33 98.88 92.50 91.02

2,847 424 422 228 64 226 61 12 13,210 4,284 17,494

Aug-13 Aug-13 Aug-13 Aug-13 Aug-13 Aug-13 Aug-13 Aug-13

Source: InGovern Research and Moneycontrol as of Mar 07, 2013; Constitutes companies from the BSE500 Index; Note: 5 Cos. (Bha rti Infratel, L&T Finance Holdings, Oberoi Realty, Muthoot Finance and Bajaj Corp) that listed with post issue size of Rs. 4,000 Crores have been excluded from this list.
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Monthly Newsletter

Listed companies non-compliant with minimum public shareholding norms

Many of the above mentioned private sector companies have committed to reduce their promoter shareholdings to comply with the SEBI guidelines prior to the deadline. Companies such as DLF, Adani Enterprises, Fortis Healthcare, Mahindra Holiday and Resorts India, Puravankara Projects, Berger Paints, Gillette India, AstraZeneca Pharma India and Timken India have already announced stake sale either through the OFS or IPP route and is expected to complete the same prior to the end of this quarter. Some of these companies have also experienced high volatility in stock prices and a significant drop in stock prices in the past few months compared to movements in the overall index. Some of the listed MNC subsidiaries that chose to comply with the SEBI norms by reducing their stake through the OFS route instead of the delisting route were also affected significantly since the stock prices of these companies had shot up in the past on delisting expectations. Some of the stocks that experienced significant volatility and downward stock price performance:

Company Name Public Sector Companies MMTC Hindustan Copper National Fertilizers Rashtriya Chemicals & Fertilizers Neyveli Lignite Corp Listed MNC Subsidiaries AstraZeneca Pharma India Timken India Gillette India Thomas Cook India Novartis India Private Sector Companies Adani Enterprises Jaypee Infratech Mahindra Holidays & Resorts India Fortis Healthcare BSE 500 Index
Source: InGovern Analysis

Stock Price Performance 1 Month -40.86% -10.47% -11.66% -15.21% -14.20% 3 Month -52.97% -24.82% -23.24% -20.64% -14.46%

Stock Volatility 1 Month 28.05% 14.52% 14.50% 9.19% 8.01% 3 Month 29.01% 16.11% 16.92% 13.67% 12.55%

-41.59% -16.10% -15.05% -10.95% -9.25%

-48.15% -22.24% -19.07% -18.54% -15.07%

16.65% 9.43% 8.20% 8.75% 6.70%

21.19% 14.09% 10.28% 11.28% 7.98%

-10.66% -8.34% -7.17% -5.23% -3.54%

-15.78% -12.36% -14.11% -9.33% -3.64%

13.22% 15.29% 8.05% 6.92% 3.96%

21.11% 21.80% 11.84% 11.84% 5.48%

Compared to a drop of around 4% and volatility of around 6% in the overall index in the past three months, these stocks have fallen between 10%-50% and have experienced volatility of around 10% -30%. Investors should watch out for these stocks as well as other stocks in the list which are yet to announce any corporate actions to reduce their promoter shareholding prior to the deadline. Article by Mohan Kumar K, Lead Analyst, InGovern Research Services Private Limited.
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Monthly Newsletter

Q&A with Shriram Subramanian: Socially Responsible Investing

Each week Emerging Markets ESG publishes an interview entitled, Five Questions about SRI. The interview features a practitioners insights about SRI in emerging markets and through Emerging Markets ESG shares this expertise with a wide global audience. The goals of Five Questions about SRI are to collect a catalogue of examples of SRI in practice in emerging markets, to raise awareness about SRI in emerging markets, to reflect on what SRI in emerging markets means to practitioners and to enable SRI practitioners in emerging markets to network with peers around the world. On March 08 2013, Emerging Markets ESG published the interview with Shriram Subramanian, Founder and MD, InGovern Research Services Pvt. Ltd. and his insights about SRI in emerging markets, the extract of which is given below: How would you define socially responsible investment (SRI)? Socially Responsible Investing (SRI) is an investment process that considers the social and environmental consequences of investments, both positive and negative, within the context of rigorous financial analysis and involves the incorporation of these factors into investment management. SRI basically takes into account monetary returns, social benefits and environmental sustainability factors and invests in businesses which demonstrate a high level of commitment to meeting these environmental, social and governance (ESG) standards. Issues such as climate risk management, social and environmental risk management, undertaking activities that lead to natural resource depletion, human rights violations, labor standards, anti-bias employment policies, corporate social responsibility themes, improved shareholder proxy access, executive compensation, board diversity and independence, etc. are some of the factors on which most companies might fail the ESG evaluation criteria. In the Indian context, where growth and employment creation is pursued, SRI practices are limited. The latest Companies Bill mandates that every large company spend 2% of net profits on corporate social responsibility activities. What distinguishes SRI from mainstream investment? Mainstream investments have largely been focused only on financial returns on their investments without any consideration of the ESG factors affecting that investment. Investment managers and market participants under the mainstream investing analyze financial performance of the companies or assets they invest in with the sole purpose of generating financial returns but largely ignoring ESG impact factors due to those investments. In contrast, SRI is any investment strategy which seeks to consider both financial return and social good. SRI avoids investing in companies which do not demonstrate a high level of commitment to meeting ESG standards. Which extra-financial theme environmental, social or governance is the most challenging for investors in Indian companies to analyze? The most critical aspect of SRI is the development of non-financial metrics relating to ESG factors which can be used for evaluation, screening and analysis of socially responsible investments. While corporate governance factors such as compliance with local regulations, upholding minority rights, executive compensation, board diversity and independence are comparatively easier to report, track and evaluate, more development is needed of reporting and analyzing factors relating to social and environmental risk management, climate impact, corporate social responsibility themes, labor standards, etc. Data on environmental and social themes is not readily available from companies in India.
Thus a need arises for a standardized reporting framework by Indian companies. UN Global Compact, Global Reporting Initiative (GRI) and Carbon Disclosure Project are internationally accepted reporting frameworks which provide a platform for companies to disclose their sustainability practices and policies. In India, the National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business of 2011 is a step in this direction in the Indian context. Only one Indian financial institution IDFC is a signatory to the UN Principles for Responsible Investment (PRI), while over 270 Indian companies and institutions are signatories to UN Global Compact.
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Monthly Newsletter

Q&A with Shriram Subramanian: Socially Responsible Investing

Which extra-financial theme environmental, social or governance is the most challenging for companies in India to manage?
All three non-financial metrics are equally important and Indian companies should put in place systems and process to manage risks arising from any of these factors. The first step towards managing these risks is for companies to adopt s ustainabil-

ity reporting and mainstream disclosures on environmental, social and governance metrics. A continuous monitoring and evaluation of these metrics can help in effectively managing these risks. While corporate governance factors are more frequently reported by companies, social and environmental reporting are often ignored by even investor friendly companies and hence evaluating and mitigating these risks become that much more of a challenge. Even factors such as issues related to land acquisition, resource allocation policies of government; law enforcement, etc. play a huge role in managing these risks. InGovern as a pioneer proxy advisory firm digs deep into corporate governance issues of listed and unlisted companies. Institutional investors commission InGovern to analyze and monitor their investments for governance related issues. How has the Satyam scandal impacted the regulatory environment for ESG reporting in India? The Satyam scandal was a watershed event which led investors and regulators in India to realize the importance of ESG reporting. Immediately following the Satyam scandal in 2008, the Corporate Governance Voluntary Guidelines 2009 was announced by the Ministry of Corporate Affairs. Such awareness has led to substantial improvements both in the Indian regulatory framework as well as investor scrutiny of portfolio companies on many parameters. Substantial changes have been incorporated in the Companies Act for minority investor protection. The Securities and Exchange Board of India (SEBI) has also incorporated many changes in corporate governance reporting and mandatory disclosure requirements on listed companies. Further, SEBIs recent proposal to improve the corporate governance framework by amending the listing agreement provisions as well incorporating new mandatory provisions for Indian companies to comply with are some of the steps in this direction. However, most companies in India have not yet adopted ESG standards that are basic, essential and may even be a part of many a companys corporate responsibility. There is an imminent need for improving compliance, disclosures and reporting framework for companies on the ESG front. Much of the ESG reporting has to move from being voluntary to mandatory. There is also a need for investors and market participants to move on from relying only on normal channels of information such as company reporting to capturing other relevant submerged information about their portfolio companies. The full article can also be read on this link: Emerging Markets ESG March 08 2013

Some Interesting Tweets in February 2013

SEBI has released a circular with revised requirements for Scheme of Arrangements: Link to the Article SEBI has released Investment Advisors Regulations 2013: Link to the Article Sebi clears Diageo-United Spirits deal with riders: Link to the Article InGovern's recommends voting against Pantaloons' fashions business de-merger: Link to the Article SEBI Constitutes Committee to review Insider Trading Regulations: Link to the Article
Follow us on Twitter: @InGovern on twitter.com/ingovern
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Monthly Newsletter

Upcoming Meetings in March 2013

AGMs Company Name MERCK EICHERMOT ESCORTS BFUTILITIE KSOILS Meeting Date 15-Mar 22-Mar 22-Mar 30-Mar 30-Mar

List of 35 InGovern Vote Reports published in February 2013

Company Name Century Plyboards (India) Ltd. Essar Oil Ltd. Jubilant Foodworks Ltd. IL&FS Engineering And Construction Company Ltd. Mahindra Holidays & Resorts India Ltd. Allcargo Logistics Ltd. Gulf Oil Corporation Ltd. Bank Of India HSIL Ltd. Blue Star Ltd. Gitanjali Gems Ltd. Future Ventures India Ltd. Future Ventures India Ltd. Future Ventures India Ltd. Pantaloon Retail (India) Ltd. Punjab National Bank UCO Bank Gateway Distriparks Ltd. Bank Of Baroda L&T Finance Holdings Ltd. Punjab & Sind Bank Sadbhav Engineering Ltd. IDBI Bank Ltd. Thomas Cook (India) Ltd. United Bank Of India Omaxe Ltd. Piramal Enterprises Ltd. Religare Enterprises Ltd. TVS Motor Company Ltd. Corporation Bank Union Bank Of India Bank Of Maharashtra Central Bank Of India A2Z Maintenance & Engineering Services Ltd. Bharti Airtel Ltd. Meeting Date 13-Feb 18-Feb 18-Feb 22-Feb 23-Feb 25-Feb 26-Feb 01-Mar 01-Mar 02-Mar 02-Mar 04-Mar 04-Mar 04-Mar 04-Mar 04-Mar 04-Mar 08-Mar 11-Mar 11-Mar 11-Mar 11-Mar 12-Mar 12-Mar 12-Mar 13-Mar 13-Mar 14-Mar 14-Mar 15-Mar 16-Mar 18-Mar 18-Mar 20-Mar 25-Mar Meeting Type CCM PB PB AGM EGM CCM PB EGM CCM PB PB EGM CCM CCM CCM EGM EGM EGM EGM PB EGM EGM PB EGM EGM PB CCM PB PB EGM EGM EGM EGM PB PB

EGMs Company Name CORPBANK UNIONBANK MAHABANK CENTRALBK IOB MOTHERSUMI SBIN KWALITY UTTAMSTL DYNAMATECH DHANBANK Meeting Date 15-Mar 16-Mar 18-Mar 18-Mar 18-Mar 18-Mar 18-Mar 20-Mar 23-Mar 25-Mar 30-Mar

PBs Company Name RELIGARE SUNTECK TVSMOTOR A2ZMES HAVELLS UBHOLDINGS HOTELEELA BHARTIARTL FUTUREVENT MAGMA NETWORK18 UNICHEMLAB EIHOTEL PIIND Meeting Date 14-Mar 14-Mar 14-Mar 20-Mar 20-Mar 20-Mar 23-Mar 25-Mar 28-Mar 28-Mar 28-Mar 28-Mar 30-Mar 30-Mar

CCMs Company Name PEL SHRIRAMCIT Meeting Date 13-Mar 25-Mar

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Monthly Newsletter
About Us

First Proxy Advisory Services company in India Fostering institutional shareholder activism in India through Governance and Proxy research Pioneering Proxy Analysis and Research in India Office Locations: Bangalore & Mumbai

InGovern Research Services Pvt. Ltd.

T: +81-80-4227-9150 E: info@ingovern.com

Team Size: 8; Post Graduates (MBA, MS) = 7; Graduate = 1 Advisory panel of corporate governance experts Sale and Distribution of Vote Recommendations also through Broadridge ProxyEdge platform

We are in the news!

February 05, 2013: InGovern comments on SEBIs Buyback Norms in Financial Express - Link to the Article February 07, 2013: InGovern MD comments on Delisting in Business Standard - Link to the Article February 09, 2013: InGovern on Scheme of Arrangements in CNBC Program: The Firm - Link to the Article February 20, 2013: InGovern Recommends Voting Against Pantaloon Retail CCM - Link to the Article February 25, 2013: InGovern in an article on Proxy Advisories in Business Today - Link to the Article February 27, 2013: InGovern Recommends Voting Against Piramal Enterprises CCM - Link to the Article

To contact us for more information, write to us at info@ingovern.com or research@ingovern.com

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