labels: essar group, sterling group, tamilnad mercantile bank, banks & institutions
A sterling exit for Sivanews
Ten years after the Es
21 February 2004

Chennai: In a sudden twist, press baron B Ramachandra Aditan, leading the TMB retrieval movement and A Subramaniam, representing the Sterling group that holds 33 per cent stake in the bank, inked a sale deed in the presence of deputy prime minister L K Advani, in the capital.

As per the agreement, the C Sivasankaran-promoted Sterling group will transfer its remaining 33 per cent holding of 95,418 shares in TMB to seven Nadar nominees for Rs. 130 crore. The price has to be paid before the end of the year.

The deal is structured such that each individual will hold less than 5 per cent stake in TMB to avoid having to seek the Reserve Bank of India's (RBI) permission. "At last the bank is back with the Nadar community," says Aditan heaving a sigh of relief. He is now busy tying up the loose ends.

Declining to divulge the names of the seven Nadar investors, Aditan says they will soon send in their share transfer applications. "It is now a routine matter," he says. It is learnt that the shares will be lodged with the bank's headquarters at Tuticorin for transfer in two weeks time.

Once again, Sivasankaran, the master corporate trader has come out with a sterling deal for himself in his fight with the Nadars, a trading community.

Sivasankaran will pocket a total of Rs.211 crore as against his acquisition price, which is reported to have been around Rs.65 crore. The Nadar community had earlier paid him Rs.81 crore for transferring 34 per cent out of his 67 per cent earlier holding .

There are several intriguing aspects to the deal.

A recap

But before this, a brief recap about the decade-long TMB tussle. In 1994 the Ruia-promoted Essar group acquired 67 per cent stake in the bank for Rs.28 crore from three major shareholders - G Kathiresan, chairman, Tuticorin Spinning Mills, S Ashok of the Sivakasi-based Pioneer Asia group and an individual, M S P Raja. The share sales turned into Nadar community versus a north Indian industrial group.

To oust the "northerners", the Nadar Mahajana Sangam constituted a retrieval committee and formed the Nadar Mahajana Bank Share Investors' Forum. The retrieval movement finally gained momentum under Aditan's leadership.

Meanwhile, the Reserve Bank of India had refused its approval to the acquisition, which meant he Essar group could not get the shares transferred to its name. The Ruias were left with no option but to come to the negotiating table with the Nadars who agreed to pay Rs.56 crore for buying out the Ruia's stake.

However, the Nadars were unable to raise the money within the stipulated time. On their part, the Ruias upped their asking price to Rs 100 crore. Subsequently, the Ruia's sold their entire 67 per cent to the Sterling group, which demanded more than Rs.200 crore from the Nadars.

The talks broke down and this time too, the RBI refused to transfer the shares in the Sterling group's name. Once again the parties came to the negotiating table and agreed to a price of Rs 155 crore for the shares.

Meanwhile, the three Nadar sellers, who had sold their shares to the Ruias, stuck to their directorships on the ground that the shares were still in their names.

In 2001, the Sterling group was paid Rs 81 crore in exchange for 34 per cent of its shares. The shares are in the process of being sent to individual investors who had contributed to the Nadar Mahajana Bank Share Investors' Forum.

Meanwhile, last November, the board of TMB tried to sack chairman R Natarajan (See ), but in turn got the sack by the Company Law Board (CLB) and RBI. TMB is now managed by the government and RBI nominees assisted by Natarajan.

The past decade also saw several cases being filed by different parties. In one of the cases, the Madras High Court ordered that the voting rights on the remaining 33 per cent stake (forming part of the latest deal) would be exercised by the person / body corporate recognised by RBI, failing which the persons whose name appear in the register of members / shareholders - i.e. the original sellers from whom Essar had bought the shares.

It is also said that the November boardroom drama - dismissal of the bank chairman and chief executive - was to postpone the annual general meeting (AGM), then slated for December 12,.2003, in order to gain time to enable one group to shore up voting rights in its favour.

After a gap of seven years, TMB's AGM will now be held on March 12, 2004.

Just a day prior to the latest high profile agreement, the RBI refused to acknowledge the Sterling group as the owners of the TMB shares. The reasons for the refusal are being kept under wraps. The sterling deal that intrigues

Now back to the intrigues about the Sterling group's sterling deal.

Persons associated with the TMB imbroglio question the urgency with which press baron, Aditan and Sivasankaran concluded the deal, the high purchase price and the identity of the seven investors.

Isn't Sivasankaran the one in a tight spot after the RBI's refusal? Aditan defends the deal saying: "I wanted the whole issue to conclude at the earliest. I always felt the urgency to solve the issue in the interests of the Nadar community and the bank."

Contrary to what many think, the latest deal didn't come through overnight, though RBI's refusal might have hastened the process. The identity of an alternative route to solve the tangle was started several months ago.

Perhaps, with the date of the AGM round the corner, Aditan wanted to have the majority stake under his control. Already his lieutenants are fanning out approaching shareholders to collect their proxy forms.

The other intriguing aspect is the identity of the seven Nadar investors who have agreed to fork out Rs.13,500 per share, forming part of the share lot with an unclear status. Privately, shares with clear titles change hands for Rs.8, 000. The book value of the shares is Rs.14, 000.

Could the Nadars have bargained harder and got the shares for a lower price since the Sterling group's exit route had been blocked by the the RBI decision and the Madras High Court ruling ? Sivasankaran could not have sold out to anybody else as no non-Nadar buyers would want to touch the stake given its ten year history.

Moreover, the Sterling group is in the process of consolidating its presence in the cellular telephony sector while exiting from its high profile broadband venture Dishnet DSL.

It is also worth noting that the Nadar Mahajana Bank Share Investors' Forum had found it virtually impossible to mobilise the much lower price of Rs 56 crore to pay the Ruias to buy back the shares, thereby prolonging the issue. It is learnt, that the Nadars were even agreeable to roping in financial institutions like the Life Insurance Corporation (LIC) or even foreign banks to buy into the Tuticorin-headquartered bank, subject to each holding a maximum of 5 per cent.

Decided not to fish in troubled waters

Trying to take advantage of the Sterling group's predicament would have resulted in confusion and mudslinging within the community, explains an Aditan confidant.

"The purchase price has been arrived at after a proper professional assessment. The seven investors are confident that their investment will appreciate further. Nobody could question the price as it is much higher than what other community members paid," replies Aditan.

Says S Gurumurthy, chartered accountant and one of the key persons in hammering out the latest deal: "Earlier the Nadars were reluctant to assume individual responsibility. But now the situation has changed."

According to one legal eagle, the road is clear for the Sterling group to ride out of TMB. Going by the available information, nobody can have any complaints against the latest agreement signed between the Nadars and the Sterling group. Moreover any case relating to TMB has to be filed in the Madras High Court, which will not brook frivolous cases concerning the bank.

However Aditan's counsel, the young P H Arvind Pandian is bit cautious. "The situation is still fluid right now and much more clarity will emerge in two weeks time."

A CLB hearing is also slated for March 5, 2004. The Aditan camp is interested in seeing the AGM held peacefully.

If everything goes smoothly, the only issue that will be pending is the final settlement with the Sterling group by the end of this year. How each of the seven Nadars mobilise around Rs.19 crore as their share, is what every one is now waiting to see.

A bit more than the Nadar's can chew?

 

also see : The seven-year itch

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A sterling exit for Siva