MNCs Want to Have the India Cake and Eat it Too WILL THE UNILEVER OFFER MARK THE START OF THE END OF THE EQUITY CULTURE?

 Unilever Plc's decision to throw $5 billion to raise its stake in Hindustan Unilever may be a reflection of its desperation to grab a higher share of the India growth story, but it is also an acceleration of a trend that could make the revival of equity culture elusive. 

The maker of Dove and Surf may be well within the law unlike in the 90s when the group was charged with insider trading, but a reduction of a quarter of a float of the biggest consumer goods maker will be a loss for market depth, and investors. 
In fact, life has come a full circle – from mandated to listing of international firms, to nearly forcing minority holders to part with shares, 
though in Unilever's case it is no delisting proposal yet. 
An unintended government policy dating back four decades which helped foster an equity culture in India with many owning multinational companies' stocks for decades, is giving way to a culture where even funds are happy if the price offered gives them a decent return for the year. 
Many of Ms. Indira Gandhi's economic policies did not make sense, but the mandatory listing for foreign companies made many millionaires, and are probably the only few who have survived the boom-bust cycles. 
The economic rationale was that these companies with a low capital base were repatriating huge amounts as dividends and that too at a time when foreign exchange was tightly controlled by the central bank and the government. The Foreign Exchange Regulation Act (or FERA) was then amended to force foreign firms to list in India and to offer shares to Indian investors. 
And in an era of controlled pricing of share sales, the public offerings of a host of such companies — Colgate, Wimco, Tata Findlay as it was called then, Hindustan Lever, Cadburys, Britannia, Castrol were lapped up by retail investors. 
The Hindustan Lever initial public offering (IPO) in 1977 during the stewardship of T Thomas was priced at 17, inclusive of a premium of 7, based on a pricing formula approved by the Controller of Capital Issues which vetted such share sales and the premium. The issue was a big success — coming as it did at a time when another relatively smaller home grown company then — Reliance Industries hit the market to raise funds. 
Looking back, it was that policy which helped not just thousands of retail shareholders get richer, but also boosted the portfolio of India's state-owned financial and investment institutions. Probably, it was due to the prevailing economic philosophy in developing economies of an anti-MNC bias. 
The investment portfolios of India's top public investment institutions such as the Life Insurance and General Insurance Corporation 
of India were burnished partly because many of these multinationals were forced to allot shares to them through preferential offerings. 
The government gave in then to the argument of these institutions that since there was not enough floating stock of many of these foreign fir ms to buy into, as custodians of public interest they ought to be given preferential allotment of shares in these companies when they went public. 
Given the under pricing of these shares, public financial institutions profited enormously over the decades. Over two decades starting from 1993, scores of listed multinational companies have generated huge returns for local investors — in many cases multibaggers including in Nestle, Glaxo and HUL, to name a few. Ironically, these institutions will now have to contend with the prospects of low floating stocks of wellrun, profitable, multinationals, many of whom have raised their holdings to well over 70%. The list of foreign companies who have raised the holdings of the parent firm to over 70% is growing — such as Astrazeneca Phar ma, ABB, Whirlpool, Blue Dart, Novartis, BOC and Timken India. Many marquee names such as Cadbury, Carrier Aircon and Alfa Laval have delisted. This is best reflected in the composition of the Sensex, which now has just two multinational firms — HUL and Maruti Suzuki. 
Such a trend may worry India's public shareholders who will lose out in terms of sharing in the growth of the local arm of strong foreign firms in sectors which are growing at a fast clip even in a slowing economy. Perhaps, not Indian policy makers. A decade ago, the chairman of Sebi DR Mehta did raise a red flag over the growing trend of multinationals delisting. But the ministry of finance did not lend support saying that in a mature market, as long as all approvals were in place and shareholders were " kosher" , there was no need to step in. What is worrying now is that at a time when the quality of governance of some of India's leading home-grown companies is a cause of concern, the universe of top quality companies is shrinking. This poses the risk of investment concentration in select stocks by foreign funds and local institutional investors besides a lower floating stock. 
Finance minister P Chidambaram may want investors to flock to equity markets, but with stocks of H i n d u s t a n U n i l eve r, a n d GlaxoSmithkline dwindling, investors are left with the choice of many dubious promoter backed companies. Policy makers may be waiting for Godot if this trend continues. 
shaji.vikraman@timesgroup.com 

It is a positive move for the Indian subsidiary and shareholders. It clearly shows a complete confidence in the Indian economy which is on a growth path 
ASHOK GANGULY 
Chairman, HUL (then HLL) 1980 to 1990.