UK fund threatens action against Coal India directors

MUMBAI Tue Mar 13, 2012 5:34pm IST

A labourer works at a wholesale coal shop in Kolkata October 20, 2010. REUTERS/Rupak De Chowdhuri/Files

A labourer works at a wholesale coal shop in Kolkata October 20, 2010.

Credit: Reuters/Rupak De Chowdhuri/Files

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MUMBAI (Reuters) - A British investment fund has threatened legal action against Coal India's (COAL.NS) directors for not protecting minority shareholder interests, accusing them of destroying value, at a time when India is reviving sales of stakes in state companies.

The Children's Investment Fund Management (TCI) held a 1.01 percent stake in the world's largest coal miner at the end of 2011, making it the second-largest shareholder in Coal India after the government.

In a letter sent to Coal India on Monday, TCI said the company's directors were acting against the interests of stakeholders by " blindly " accepting government instructions to roll back a recent increase in coal prices.

"The essence of our concerns is that we can no longer tolerate abuse of minority shareholders and poor corporate governance," TCI partner Oscar Veldhuijzen said in an email on Tuesday.

"By not acting in the interest of the company, the board of Coal India is effectively destroying huge amount of value which affects the people of India the most," he said.

Officials at Coal India were not available for comment.

"They have not informed us about anything," Alok Perti, the top civil servant in India's coal ministry, said when asked about the letter.

State companies in India are often valued at a discount to private-sector peers, in part because some sell their output at subsidised levels.

A recent $2.5 billion auction of state-run Oil and Natural Gas Corp (ONGC.NS) attracted little international investor interest, partly because of a lack of clarity on how much of the government's fuel subsidy burden it would have to bear.

TCI's protest highlights investor wariness about regulatory risk in India at a time when the government hopes to raise billions of dollars through the sale of stakes in state companies to cut a widening fiscal deficit.

"This is a symbolic message to the government that they shouldn't take minority interests for granted every time," said Deepak Jasani, head of retail research at HDFC Securities.

"Minority shareholders don't want these companies delinked from government control, but they certainly look for some sort of medium-term stability and clarity in policies," he said.

TCI rose to notoriety for triggering the break-up of Dutch bank ABN Amro in 2008. It also spearheaded the ousting of the chief executive of Deutsche Börse over its bid for the London Stock Exchange, and helped scupper a 2008 restructuring by London-listed miner Vedanta Resources (VED.L).

PRICING

TCI said there had been no push-back from Coal India's board to instructions from the coal ministry to reverse the increase in prices.

It also accused the government, Coal India's largest shareholder with a 90 percent stake, of hurting the miner's commercial interests by forcing it to sign fuel supply agreements with power producers, guaranteeing to supply 80 percent of contracted quantity.

Coal India, which produces nearly 80 percent of the coal in Asia's third-largest economy, bowed to pressure from the government in January and reversed a price increase after protests by power producers struggling from domestic coal supply shortages.

It is in the process of implementing a new mechanism linking prices to gross calorific value (GCV) of the coal it produces, and will review the pricing mechanism in April.

"If no clear commitments are made public to provide parity of coal prices to import prices, we will strongly consider taking legal action against individual board members for breach of fiduciary duties," TCI said in the letter.

India holds about 10 percent of the world's coal reserves, but the state miner has struggled to get swift environment clearances and land acquisition approvals for its mines, forcing expensive imports of more than 100 million tonnes annually.

Domestic Indian coal is 45-70 percent cheaper than imports.

TCI said it was also concerned

about slow implementation of Coal India's plan to set up washeries to improve coal quality as well as its lack of action on coal theft and tolerance

of inefficiencies in underground mines.

The Indian government sold a 10 percent stake in Coal India in 2010 for $3.4 billion, in the country's largest ever initial public offering.

Shares in the company, now India's fourth largest by market value, closed 1.8 percent higher in a firm Mumbai market.

(Additional reporting by Krittivas Mukherjee in NEW DELHI; Editing by Tony Munroe and Ted Kerr)

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