Editorial
Delisting Nestle Lanka PLC
Except for perhaps some 6,000 plus Nestle Lanka minority shareholders and stock market participants including retailers, many of them pensioners with time on their hands and not much capital resources to play the market, would have been interested in the recent announcement by Nestle Lanka PLC which has been quoted on the local bourse for 40 years that they plan to delist. But the question arises whether such a decision by a multinational company which has had a global presence for over 150 years and is one of the world’s biggest food brands, is fair to the minority shareholders of their Sri Lanka incorporated company. Nestle boasts it has been present in this country for over a century and the brand is a household name not only here but in many parts of the world. That was a factor that attracted investors to buy its shares when it was first listed on the Colombo bourse. But now, four decades later, they plan to delist.
It must be said in fairness to the company that it has announced that it will be paying a dividend of Rs. 75 a share to its shareholders, probably the biggest ever declared on the Colombo Stock Exchange, prior to its delisting. Analysts and market observers believe that this is a way of paying out all the cash in the company to its present shareholders before it becomes an unquoted subsidiary of its Swiss parent, Nestle SA. Alongside its directors’ delisting proposal, the company has announced its intention to pay Rs. 1,500 per share to the minority which the company says is an “attractive and fair premium.”
But, as a correspondent to a financial daily wrote a few days ago, the mere announcement that the company, subject to regulatory and shareholder approval, will delist is not the end of the story. The directors recommendation can still be rejected by the shareholders, he has noted. This happened twice in recent times. First, the quoted Bank of Ceylon subsidiary, Property Development PLC (previously PDL) that owns the banks headquarters building, and AIA, the insurance multinational were rejected by minority shareholders on a ‘one man one vote principle’ against ‘one share one vote’ which generally happens where members are polled at company meetings. In AIA’s case, a price of Rs. 2,500 a share against an original exit offer of Rs. 1,000 was eventually paid.
The delisting of PDL was in limbo for as long as five years after the proposal was first announced. In the case of that company, it ultimately delisted by paying Rs. 183 per share, up 40% from Rs. 130 offered in 2018. The PDL share, of course, did not enjoy the capital appreciation that the Nestle share did, nor did it pay very high dividends like the latter. Finally PDL itself, and not the Bank of Ceylon – its predominant shareholder – bought out the minority.
Although Nestle was unable to pay dividends to its shareholders in the early years as a listed company, investors who were patient were delighted to see in later years capital appreciation of their shares and dividends that were among the highest declared by companies listed on the CSE. The company also did not make a great success of its spray drying milk powder project, something much needed by the country which has long been unable to make a dent in the import demand for this product. Nestomalt, Maggi, coconut milk powder etc. are Nestle products that have made their mark. Coconut milk powder has done very well in export markets. The company’s contribution to local dairy development is also not inconsiderable and its presence in the country has undoubtedly been for Sri Lanka’s benefit. It says it will maintain its presence here and development focus. But all things considered, remaining listed in Colombo and permitting nationals to have an ownership stake, though small, in the company would be considered desirable by many.
Around 2021, Nestle Lanka’s parent began to buy shares available on the market, a big block of slightly under 300,000 shares done at Rs. 1,200 a share. Some market participants, sensing or speculating of a delisting down the road began to focus on the share but acquiring quantity was difficult due to unavailability and the price per share being also high. So trading opportunities were limited.
Nestle has now announced that an Extraordinary General Meeting will be held in Colombo to consider the delisting resolution. It needs no rocket science to forecast that the company with over 6,000 minority shareholders, over 5,000 of them holding between one to one thousand shares, it will be possible to outvote the resolution on the ‘one shareholder, one vote’ principle. Given the experience of PDL and AIA, it is most likely that an effort will be made to force up the exit offer price. Other than for Nestle SA, the parent, no shareholder on the register holds more than one percent of the company. But institutions like the Sri Lanka Insurance Corporation, EPF and foreign and local funds are among the minority. Whether they would be satisfied with the exit offer or join the majority to up the ante remains to be seen.
Saturday 8th June, 2024
It was with shock and dismay that we received the news about death threats to COPF (Committee on Public Finance) Chairman Dr. Harsha de Silva over the ongoing parliamentary probe into the on-arrival visa scam. Dr. de Silva yesterday told Speaker Mahinda Yapa Abeywardena, in Parliament, that he was facing death threats and intimidation, and it was incumbent upon Parliament to ensure his safety. He stopped short of naming names, but revealed that some ruling party MPs were among those who had ganged up against him. The Speaker only said there had been no complaint, and he would look into the matter.
The SLPP-UNP government has been doing everything in its power to have all parliamentary committees under its thumb. The COPE (Committee on Public Enterprises), which once helped restore public faith in the legislature by exposing state sector corruption, has now become a mere appendage of the incumbent regime, thanks to the appointment of SLPP MP Rohitha Abeygunawardena as its Chairman. The SLPP-UNP combine also tried to oust COPF Chairman Dr. de Silva, but in vain. However, it knows more than one way to shoe a horse.
The COPF, under Dr. de Silva’s chairmanship, has been a thorn in the side of the government, which is struggling to cover up numerous corrupt deals. Dr. de Silva yesterday told Parliament that he found it extremely difficult to function as the COPF head due to severe resource constraints his committee was facing; he himself had to pay the salaries of some of his staff members besides burning the midnight oil.
The sheer workload he had to cope with as the COPF chief had taken its toll on his health, he said, informing the Speaker that he was at the end of his tether, and at times thought of resigning from the COPF. This is exactly what the government wants him to do; resource squeezes and threats are aimed at making him quit.
On 26 May, Dr. de Silva revealed, in an ‘X’ post, that the COPF had uncovered some vital information about the visa scam and it would reveal everything after its final meeting on the issue; the COPF was committed to exposing the truth behind the controversial tender, he added. In an editorial comment on 27 May, we warned him.
While thanking him for his bold stand, we pointed out that by making such a statement, he had thrown caution to the wind, and become a marked target, with the government making an all-out effort to delay the COPF investigation lest the truth should come out much to the detriment of its interests in this election year. Unfortunately, what was feared has come about; Dr. de Silva is complaining of death threats and government moves to strangulate the COPF financially to derail its investigations.
Dr. de Silva’s predicament exemplifies the fate that befalls the few good men and women in Parliament. It is hoped that all those who seek an end to the state sector corruption will rally behind Dr. de Silva, and bring pressure to bear on the government to ensure his safety. Let Dr. de Silva be urged to reveal the names of those who have issued threats, veiled or otherwise, to him and are trying to scuttle the COPF probes.
Friday 7th June, 2024
The SLPP-UNP government is going hell for leather to make bad laws as if there were no tomorrow. It is abusing its parliamentary majority, which has been retained with the help of some crossovers, for that purpose. The Opposition, the media and trade unions are up in arms, and understandably so. The incumbent regime is a dead man walking; it is so desperate that it is capable of anything. Hence the need for it to be restrained.
The Electricity (Amendment) Bill (EAB) plunged Parliament into turmoil yesterday, but the government secured its passage. The Supreme Court (SC) determined the entire EAB inconsistent with the Constitution and recommended changes thereto. After unveiling the Bill, sometime ago, Minister of Power and Energy Kanchana Wijesekera hailed it as an excellent piece of legislation aimed at straightening up the power sector to serve the public interest better.
The SC determination left him with egg on his face. He reminded us of the proverbial curate who, while eating a stale egg, assured his host, a Bishop, that parts of it were excellent. Wijesekera’s egg, as it were, made Parliament stink yesterday, but he sought to please his masters by praising it as a silver bullet.
EAB should have been discarded and a new one drafted in consultation with all stakeholders. But the government is apparently driven by an ulterior motive; its aim is not to serve Sri Lanka’s interests but to look after those of some moneybags.
It is not uncommon for Bills to contain some flaws, which are rectified either before or during the committee stage. But there is something terribly wrong with draft Bills that are full of sections inconsistent with the Constitution. The drafters of EAB have demonstrated their sheer ignorance of the supreme law, and that they are not equal to the task of drafting Bills. If they had read the Constitution at least perfunctorily, they would not have drafted such a bad law.
Ignorant and incompetent, they do not deserve to be paid with public funds and must be sent back to law school. They must be summoned before Parliament and questioned on their serious lapses, which have caused public faith in the national legislature to diminish.
Curiously, the MPs who demand that judges, doctors, Central Bankers, and other public officials be summoned before Parliament have taken badly drafted Bills for granted. The power sector trade unions yesterday alleged that EAB was of Indian origin and geared towards furthering the interests of Adani Group at the expense of Sri Lanka.
Most critics of EAB are agreeable in principle to the need for power sector reforms; the Ceylon Electricity Board should be given a radical shake-up, and transformed into a modern organisation capable of providing a better service at a lower cost. They only asked the government to tread cautiously, consulting all stakeholders and taking action to ensure that the country’s interests prevailed over everything else. But the government was in a mighty hurry to steamroller the Bill through Parliament, making the Opposition ask whether it was doing so at the behest of some external forces involved in controversial power generation deals here.
What is passed by the current Parliament can be either amended or abolished by a future parliament in a constitutionally prescribed manner. But that does not mean that a government is free to pass bad laws, making the country enter into long-term agreements with powerful nations and their investors. It looks as if the SLPP-UNP regime did not care two hoots about the consequences of its actions.
Thursday 6th June, 2024
The outcome of India’s parliamentary election (2024) has led to a ‘perspective ambiguity’. Prime Minister Narendra Modi lost no time in declaring victory for the BJP-led NDA alliance, which secured 293 seats in the 543-member Parliament, but he must be a worried man. The BJP is short of 32 seats to form a government under its own steam; it has lost 63 seats or about 20% of its parliamentary strength. It had 303 seats in the previous Parliament, and that number has dropped to 240.
Modi has become the second Indian Prime Minister to win a third term. The first PM to do so was Jawaharlal Nehru. But Nehru won an outright majority in Parliament in 1962; Modi has had to depend on smaller parties in his alliance to retain his hold on power. Modi must be reeling from a sharp drop in his victory margin in his own constituency, Varanasi; it has decreased to 152,000 from 480,000 in 2019 whereas Modi’s bete noire, Rahul Gandhi, won Raebareli by a staggering 390,000 votes.
Modi, who reigned supreme with 303 seats in the previous Parliament, is now dependent on parties such as Nitish Kumar’s JD-U and Chandrababu Naidu’s TDP to form a government. He has had to lead an alliance of strange bedfellows. Both Kumar and Naidu were bitter critics of Modi. Kumar helped form the oppositional alliance, the INDIA bloc, before switching his allegiance to PM Modi. Naidu also closed ranks with the BJP in the run-up to the election. These politicians have been described as extremely ambitious and highly unpredictable, and whether Modi will be able to manage them and consolidate his grip on the NDA alliance remains to be seen. They will demand plum ministerial posts in return for their support. The TDP is said to be eyeing Transport and Health portfolios! That is the name of the game in coalition politics, where it is not uncommon for the tail to wag the dog, so to speak. These two political leaders are however not the only problem Modi will have to contend with. The next five years will feel like an eternity for PM Modi.
Nothing would have been more shocking for the BJP than its defeat in Uttar Pradesh’s Faizabad constituency, where the Ram Mandir has been built. Modi may have thought he would be able to win the Lok Sabha election hands down after the consecration of that temple, which became a centrepiece of the BJP’s election campaign. The BJP lost that seat to the Samajwadi Party! Modi must be disappointed that the Ram Mandir hype failed to trigger a massive wave of support for his party. This particular defeat signifies a massive setback for the BJP’s ethno-religious agenda.
Modi’s divisive election campaign failed to yield the desired result. The BJP’s failure to secure an outright majority could be attributed to a host of factors, some of them being the suppression of the Opposition, the arrogance of power, chronic unemployment, and the rising cost of living. The BJP also did not care to reimage itself in a positive light to attract the youth.
Modi will hereafter see the Congress-led INDIA bloc with 223 seats, in his rearview mirror. The Congress (99 seats) and its allies have eaten into the BJP support base considerably, but they have a long way to go before being able to capture power.
The bumpy ride ahead for the BJP-led coalition government to be formed may improve the INDIA bloc’s chances of bettering their electoral performance and turning the tables on the BJP and its allies in time to come. Modi will have a lot to worry about in his third term.
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