Hedge fund turns heat on govt

At a time when the Vodofone tax dispute is seen to have dented India’s image as an investment destination, The Children’s Investment Fund Management (TCI) — one of the largest institutional shareholders in state-owned Coal India — has raised the issue of minority shareholder abuse due to “relentless government interference and regulations”.

The London-based hedge fund, which had earlier threatened to take legal action against the Coal India (CIL) board for its “failure to protect the interest of minority shareholders”, is now looking at direct litigation against the Government of India under the bilateral investment treaty with the United Kingdom.

TCI has alleged that Coal India was forced to reverse a decision to raise coal prices under directions from the government.

Chris Hohn, CIO, The Children’s Investment Fund was quoted as saying in a television interview on Monday that the Fund could send a letter to the Government of India in a week’s time to initiate the legal proceedings under the bilateral treaty, citing a breach of the pact.

Earlier, in a letter to the Coal Ministry, the UK hedge fund has alleged that “Coal India’s board and top management are not performing adequately and are harming the company”.

Attacking the Coal India management for poor performance of the mining major, the Fund said, it “lacked the necessary leadership…” and demanded that the board and management to be “swiftly changed.”

The letter further said that “if this abuse of minority shareholder” is not ceased, India’s current perception as a country that is a bad investment destination due to government interference and regulations “will be cemented into reality”.

While Coal India has dismissed the allegations saying they “do not merit comments”, analysts have warned that CIL would be better-off by taking the threats levelled by the Fund seriously as TCI has a reputation for aggressive shareholder activism.

The Fund was a major shareholder of the German stock exchange Deutsche Börse, where it forced the resignation of the CEO of the bourse after he refused to abandon his plan to take over the London Stock Exchange.

In 2007, after acquiring 1 per cent of the shares of major Dutch bank ABN AMRO, the Fund demanded that the bank split up or sell to the highest bidder to produce shareholder value. ABN was ultimately split and sold to Royal Bank of Scotland (RBS), Fortis, and Banco Santander.

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