DE Shaw funding of Amar Ujala faces legal action, penalty

New Delhi: The Foreign Investment Promotion Board (FIPB) may deem the investment made by US-based hedge fund DE Shaw in Amar Ujala in 2007 null and void subject to compunding. The board had approved the FDI in the Maheshwari family-owned media company with a rider that DE shaw and Ujala would inform the government about any structural change in the investment.

When companies fail to inform the government about changes in structure of FDI after bringing in the initial investment, the government levies penalty on them which is called compounding fee. As both the companies DE Shaw and Amar Ujala have failed to honour their commitment in 2008 when they changed the agreement, the government may take legal action and ask Shaw to pull back its investments. In the year 2007, DE Shaw had picked 18% stake in Amar Ujala for R117 crore thereby valuing the company around R650 crore. The fund at the time of making the investment had sought the FIPB approval to invest in Amar Ujala. FIPB at the time of granting the permission had specifically mentioned that any change in the conditions therein had to be first intimated to it, I&B ministry and RBI (which monitors FDI in the country) and permission/approval would necessarily be required to be taken from such authorities.

Subsequently in December 2008, DE Shaw got into the “Amended Agreements” with Amar Ujala, wherein it was assured a minimum fixed percentage of return on its investment. Also the restrictions were put on the controlling shareholders ability to transfer its equity. In addition,the said agreements provided for “affirmative vote” in favour of DE Shaw’s nominee director on Amar Ujala board which effectively means that they would be able to overrule the rest of the shareholders and thereby breaching the 26% sectoral cap in the print media.

“The two shareholders – Indian promoters and DE Shaw had altered the shareholders’ agreement after receiving the government approval and infusion of funds, which was subsequently not intimated to the Foreign Investment Promotion Board (FIPB),” a senior government official said.

When contacted, an Amar Ujala spokesperson said, “We as a company will strictly follow the FIPB permission and I&B guidelines and would not go beyond them. This will remain our firm stand”. The approval obtained by DE Shaw from FIPB in 2007 on the deal was subject to the conditions that the FDI holding should not exceed the upper limit of 26% limit and also if its holding would have to increase beyond 18% and up to 26% it would be regulated by the guidelines of I&B ministry. The permission specifically mentions that the shareholding of the largest Indian shareholder would always be 51% and above of the total paid up equity capital of the company. साभार : The Financial Express