Plans to increase stake in India opposed

INDIAN financial institutions have torpedoed moves by multinational interests to increase stakes in their Indian operations to controlling levels.

The institutions decided to oppose any preferential share allotment proposals which took the stakes of corporate promoters involved beyond the 26 per cent mark.

This is despite the fact that all preferential offers have to be made only at market-related prices, and not at the heavy discounts that prevailed during most of 1994.

The Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) had put a stop to that practice by issuing strict guidelines last November.

In cases in which promoters' stakes exceeded 26 per cent, the institutions decided to permit preferential allotments to the extent of keeping that stake constant, if the company concerned issued fresh capital.

The move assumed significance in view of the fact that several promoters had been contemplating preferential offers to themselves at current market prices, which are relatively low, and expected to rise in the next few months.

In the Indian context, where taxes are relatively high, it is difficult for promoters to raise the requisite capital to increase their own stake in their firms.

It is particularly so in the case of firms with large capital bases.

Even though the promoters remain in over-all charge, their shareholdings are often less than 25 per cent.

The Tata group, for example, has been running massive companies like the Tata Iron and Steel Co and Tata Engineering and Locomotive Co with its own stakes being seven per cent of the issued capital.