Kolkata: Minority shareholders in mobile phone operator Sistema Shyam TeleServices Ltd (SSTL) are protesting against founder Shyam Group being allowed to buy new shares at face value while the Russian government will pay a premium for a 20% stake.
The firm plans to issue 220 million new shares to the Indian promoters Shyam Group at Rs10 apiece, and 660 million shares, amounting to a 20% stake, to the Russian government at Rs49.31 a share for a total $676 million (Rs3,130 crore).
Small stakeholders represented by the Association of Minority Shareholders of Sistema Shyam TeleServices Ltd, or Amsost, said SSTL should either issue new stock to them at Rs10 apiece to make sure that their ownership did not get diluted, or create an exit opportunity by arranging a sale of shares to the Russian government at the higher price. Some 17,000 shareholders collectively own around 60 million shares, or a 2.5% stake, in SSTL.
The association was formed for “the protection of their interests”, according to Narendra Gupta, who owns 500,000 shares in SSTL and is one of the group’s co-founders. Amsost refused to disclose its membership strength.
SSTL, which owns spectrum in all 22 circles in India and offers services under the MTS brand, is controlled by Russian conglomerate Joint Stock Financial Corp. Sistema, which currently holds 73.7% of the unlisted firm, while Shyam Group owns around 23.8%.
If the preferential allotment of shares to Shyam Group and the Russian government goes through, Sistema’s stake in SSTL would be pared to around 54%, according to the firm’s president and chief executive officer Vsevolod Rozanov. SSTL obtained shareholder approval for the share sale at an extraordinary general meeting held in December.
“Most of us became shareholders of Sistema Shyam by compulsion and not by choice,” said Gupta. He was referring to the restructuring of the erstwhile Shyam Telecom Ltd, which resulted in the formation of an unlisted company. “We have been waiting for an exit opportunity for a long time now,” Gupta said, adding that Amsost is weighing legal options.
SSTL said in an emailed statement that the allotment of shares to Shyam Group was done to expedite the Russian government’s investment in the company.
“The fresh equity allotment is to facilitate the investment of the Russian Federation…and (to) speed up the network roll-out obligations in all the 22 circles in India,” a spokesperson for SSTL said, referring to the cap on foreign direct investment in mobile phone operators in India at 74%. “This is in the best interest of (all) shareholders and a large chunk of minority shareholders are supporting us on the issue.”
MTS currently offers mobile telephony services in 11 circles, and has 3.2 million subscribers. It is adding 400,000-450,000 new subscribers every month, according to Rozanov.
The money that Moscow is considering investing in SSTL is parked with the Reserve Bank of India under an agreement between Russia and India. This amount can only be invested in Indian projects, according to Rozanov. The Russian government hasn’t, however, taken a final decision on investing in SSTL’s shares.
Rozanov said “only about 10%” of the 17,000 shareholders were protesting against the firm’s decision to allot shares to Shyam Group at par. “Though it is an issue to be resolved between groups of shareholders, I appreciate the concern of the minority shareholders and meet them every quarter to provide updates on our performance and plans,” he said.
Four years ago, Shyam Telecom, a listed firm, was carved up to form Shyam Telelink Ltd. Shareholders received 794 shares of Shyam Telelink and 35 shares of Shyam Telecom for every 100 held. Over 2007 and 2008, a 73.7% stake in Shyam Telelink was sold to Sistema in phases, following which the firm was renamed SSTL.
Under new corporate laws, which are currently being drafted, minority shareholders such as those of SSTL would have greater power over protecting their interests, according to Salman Khursheed, Union minister for corporate affairs.
“While empowering these people, we have to strike a balance to make sure that they did not obstruct every decision taken by a company and deter its growth,” he added. The minister was speaking in general and not about SSTL in particular.
SSTL hasn’t decided on its listing as mandated by the Jaipur high court in August 2008, when it ordered the company to prepare for an initial public offering by February 2010, following a suit filed by some shareholders.
“We will definitely abide by the court order…an exit opportunity will surely be given to the minority shareholders,” Rozanov said. “But the market conditions aren’t suitable yet for us to list our shares immediately.” SSTL, he added, would be recovering operating costs, or become “Ebitda positive”, in three years. Ebitda stands for earnings before interest, taxes, depreciation and amortization and is a reflection of profitability.
Minority shareholders aren’t convinced. “We haven’t received any commitment on listing till now,” said Gupta. “I don’t think it will happen even in a year.”
An independent telecom analyst, who did not want to be named, said SSTL is waiting to see how the entry of Abu Dhabi-based telecom company Etisalat affects the mobile telephony business in India.
“It is the only key player that in the foreseeable future could adopt disruptive tactics to enter India,” he said. “If it does so, it could change the dynamics of the business in the same way as the new entrants did by cutting call charges. Any operator looking to go public will surely wait till Etisalat has announced its plans for India.”
The dispute over allotment of shares in SSTL recalls a similar dispute between minority shareholders and the promoters of the erstwhile DLF Universal Ltd (now called DLF Ltd) over allotment of convertible debentures.
The debentures were converted into some 400 equity shares each, thanks to a share split and a 7:1 bonus issue. The Union government and market regulator Securities and Exchange Board of India eventually intervened and forced DLF to compensate minority shareholders who were not allotted the debentures.