Minority shareholders see red in ICDs by HGS, Ashok Leyland

An investor in Hinduja Global Solutions has sought SEBI intervention over an alleged issue of misgovernance by the promoters of the company and protect the rights of minority shareholders.

Investor Aikant Bhatti, has raised concerns over the manner in which HGS and Ashok Leyland have used inter-corporate deposits (ICDs) to benefit themselves (promoters) at the expense of shareholders. At the heart of the matter is the placing of ICDs of ₹340 crore and ₹500 crore placed by HGS and Ashok Leyland. “It once again brings to the fore the use of public funds by the promoters for market manipulation and personal gains at the cost of minority shareholders,” noted Bhatti. Promoters hold 67.21 per cent in HGS.

This comes even as reports said that HGS was looking to hive off its health vertical. When contacted an HGS spokesperson said, “In view of changing market dynamics and the need to enhance profitability, the HGS Board of Directors had asked for a review of our existing portfolio of businesses to unlock higher value. We had communicated this to the stock exchanges on September 7, 2020. We have no further comments on speculations in the news media.” HGS did not respond to the allegations made by the investors.

On the ICDs’ issue, Bhatti has alleged that ICDs were made to entities owned directly or indirectly by Ashok P Hinduja, who ensured that the boards of HGS and Ashok Leyland are represented by directors who are employees of the borrowing companies. Additionally, four independent directors were pushed aside by AP Hinduja in the recent past when it became clear to him that they would not compromise public interest to benefit the personal interest of the promoter, according to sources inside the companies.

Also read: SEBI, ROC write to Sterling and Wilson Solar on delay in repayment of inter-corporate deposits by promoters

Further, there are questions of conflict of interest regarding some independent directors across Hinduja-promoted publicly-listed companies, more specifically HGS and Ashok Leyland. These conflicts pertain to independent directors whose law firms are also legal advisors to AP Hinduja and his privately-held companies, Bhatti stated.

The issue came to light in the Q1 results of HGS when some analysts and investors sought the reasons for the ICDs made in Hinduja-related entities. When this question was raised at the investor meet and the Annual General Meeting, satisfactory answers were not provided. Emails sent by Bhatti were unanswered and he considers this as a way of sidelining such important matters. “Even the minutes of the last AGM are misleading and false as the minutes neither record the questions raised by shareholders nor did the directors bother to answer such queries,” said Bhatti. When contacted, an HGS spokesperson declined comment.

Also, minority investors are of the view that the combined ₹840 crore is neither available to shareholders (in the form of dividends) nor is it used to repay debts. “Had the funds been used to repay debts of HGS, it would have become debt-free and it would not have been an issue,” said Bhatti. During the quarter-ended September, gross debt fell from ₹577.7 crore to ₹545.4 crore. This debt consists of ₹360 crore of debt in overseas subsidiaries and ₹183.7 crore on the India balance sheet.

Shareholder activism firms believe that the issue of ICDs such as the one which investors in Sterling and Wilson encountered, need to be addressed. “These inter-corporate deposits should be treated as related party transactions and put to vote by minority shareholders,” said Shriram Subramanian of InGovern, a shareholder activist company.