Beware India Inc., A Portfolio Fund Manager Has Turned Shareholder Activist
After mutual funds and insurers, will portfolio managers turn shareholder activists?
A portfolio fund manager is banking on India’s company law to try what mutual funds and insurance companies have done so far: shareholder activism.
Chennai’s Unifi Capital Private Ltd. is seeking a board seat at Alembic Ltd., a Gujarat-based pharmaceutical and real estate company. And Unifi Capital wants to represent small shareholders under a provision that has never been used before: Section 151 of the Companies Act, 2013.
Alembic included the proposed appointment of Murali Rajagopalachari, vice president-research at Unifi Capital, in the agenda for its July 28 board meeting, only to withdraw it later.
So far, mutual funds and insurance companies have occasionally wielded influence as activist investors. Unifi’s bid may be a test case for institutional portfolio fund managers, which together have over Rs 1.34 lakh crore worth of equity assets under management, to have more say in company matters.
The Companies Act provides the opportunity. The law allows for the appointment of a director representing the interests of small shareholders. Stock exchanges, depositories and banks are required to have shareholder directors, explained proxy advisory firm Institutional Investors Advisory Services in a note. The Companies Act attempts to achieve the same goal for listed and non-public companies through Section 151, IiAS said.
The Act defines small shareholders as those holding shares worth a nominal value of not more than Rs 20,000.
Rajagopalachari did not want to comment when contacted by BloombergQuint. Alembic was yet to respond to an emailed query.
Unifi Capital, a 16-year-old portfolio management company founded by Sarath Reddy, has Rs 2,500 crore worth of assets under management. Alembic has business interests in pharmaceuticals, real estate and renewable energy.
The Flip-Flop
On July 18, Alembic published in the newspapers a notice to shareholders stating that it plans to add an item – for “appointment of Murali Rajagopalachari to the office of a director” – to the agenda of the July 28 annual general meeting.
Four days later, it withdrew the addendum. It said “the company has received a request from the proposer that his request be considered only under Section 151 of the Companies Act, 2013”. The notice “be not transacted and put up for voting”, it said.
The Alembic board is expected to meet on July 28 ahead of the AGM. Its management confirmed to IiAS that the board will consider Rajagopalachari’s appointment as a small shareholder director under Section 151, the advisory firm said.
If the board allows the appointment, the company would have to seek the approval of shareholders through postal ballot in which only small investors will be eligible to vote, IiAS said. Rajagopalchair can be appointed through a simple majority, it said.
Alembic shareholders, however, have little information on it, the advisory said. “The board’s radio silence is providing neither guidance nor clarity on the context of the resolution.”
Unifi Capital, on the other hand, must provide clear guidance to all shareholders if it is to undertake actions that create shareholder value, and garner their votes through a more public discourse of their agenda, IiAS said.
Unlike previous attempts, this is the first time that a set of astute shareholders have decided to act, compelling the company and its board to make thoughtful decisions. How this plays out will have far reaching consequences for the development of India’s equity market.IiAS Report