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Monday, Dec 09, 2002

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Post-deal, foreign stake in SCI can top 25%

P. Manoj


FOREIGN shipping lines have stayed away from bidding for Shipping Corporation of India (SCI) due to the 25 per cent limit on foreign shareholding prescribed by the Government out of the 51 per cent being put up for strategic sale.

However, the Disinvestment Ministry has now agreed to allow foreign shareholding in SCI in excess of the 25 per cent limit set during the privatisation under certain circumstances, according to the final draft of the shareholders agreement.

Though all the four bidders remaining in the fray — Great Eastern Shipping Company Ltd, Essar Shipping Ltd, Sterlite Group and Videocon — are bidding on their own without any foreign partners, the Disinvestment Ministry has agreed to the foreign shareholding exceeding the 25 per cent cap.

This is a post-transaction eventuality arising primarily in view of the fact that the main contenders for acquiring SCI - - Gesco and Essar - - have tied up their fund requirements to bankroll the deal with foreign bankers.

Against this backdrop, the possibility of foreign holding coming into SCI and that too exceeding the 25 per cent limit could happen as follows.

The Disinvestment Ministry has allowed the successful bidder to pledge with the lenders all or any part of the 51 per cent shares acquired from the Government in SCI to raise funds for the acquisition.

In case of an event of default, the pledge can be invoked by the lenders after 12 months from the date of creation of such pledge.

"If the invocation of the pledge takes place, the lender can transfer the shares to itself even if it results in the breach of the maximum permissible foreign shareholding," states the draft transaction documents.

The Disinvestment Ministry has said that such transfer would not require any prior approval from the Government as the lender is pre-approved.

On invocation of the pledge, the lender can also sell the shares to a third party subject to the condition that the transferee is not a prohibited person.

Such sale of shares is permitted automatically if the third party is an Indian person. But, if the third party is not an Indian, the sale of shares would be subject to the prior approval of the Government. And, if the approval is refused, the Government would have to buy the shares from the lenders at a price which is either 50 per cent of the fair value of such shares or the outstanding dues to the lender under the financing arrangement between the strategic partner and the lender, whichever is lower.

Officials said that the one-year lock-in period imposed by the Disinvestment Ministry on invocation of pledge by the lenders in case of default might also be dropped.

The lenders have told the Government that this stipulation contravenes a Reserve Bank of India guideline issued on August 16, 2002 which requires that the security of shares against which advances are made can be freely marketable at all times.

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