“London-based hedge fund, The Children’s Investment Fund (TCI), on Saturday said it has instructed its Indian lawyers to begin the process of taking legal action against the state-run Coal India Ltd (CIL) and its directors for breach of key provisions of Indian corporate laws,” reports the Times of India. “TCI is the single-largest CIL shareholder after the government and has 1% stake.” According to the Wall Street Journal, this makes TCI the second largest shareholder after the Indian government. TCI initiated its position after Coal India’s initial public offering in 2010.
“The conduct of CIL and its management over the past months constitutes… breach of fiduciary duties and CIL’s affairs (are) being run in a manner that is both prejudicial to public interest and oppressive to shareholders,” alleges The Children’s Investment Fund. “TCI believes that a number of government directives are not in the public benefit and should not be followed by CIL, because they destroy the profitability and value of stake in CIL. Moreover, short-term exploitation of CIL’s assets will cause untold damage to the Indian economy: discouraging investments; and impair the ability of the Indian government to raise capital through IPOs and FPOs.”
Amongst the issues TCI has with CIL is its pricing of coal. There is a dual pricing system in place – the company charges one price for the power sector and another for industrial companies, like steel companies and cement companies. “The coal ministry had recently written to TCI saying the pricing structure was clearly mentioned as a risk factor in the company’s IPO prospectus and argued that even after selling at half the price of imported coal, CIL is still making profit,” says the Times of India.
On March 12, TCI sent a letter to Coal India’s board alleging that the coal producer was not protecting the interests of minority shareholders. “TCI said that it had ‘sufficient evidence’ to show that the company’s board was simply following government instructions on business matters, rather than acting independently,” writes the Wall Street Journal. The letter said, “It is unacceptable that the board is… not protecting minority shareholders who have invested in good faith in the company.” The Wall Street Journal reports that “TCI’s letter to Coal India executives was triggered after Coal India reversed a move to increase its coal prices, which was effective Jan 1. TCI officials say the reversal was done at the behest of the government.”