Proxy advisory firm SES opposes Fortis’s proposal to raise FII limit

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Mumbai: Proxy advisory firm Stakeholders Empowerment Services (SES) on Monday recommended shareholders of Fortis Healthcare Ltd to vote against a proposal to raise foreign institutional investors’ (FII) investment limit in the company citing what it called lack of transparency on the company’s part in providing an adequate rationale for this plan.

On 26 May, Fortis Healthcare had issued a notice to its shareholders seeking their approval for its plan to increase the FII limit to 74% of the paid-up capital of the company from 24%.

“The present percentage holding of these institutional investors has already crossed the prescribed limit of 24% of the paid-up capital and the same has shown an increasing trend,” the company said in the notice.

Shareholders have to respond to this proposal through a postal ballot by end of day on 27 June.

The increase in the FII limit can be achieved only if the promoters sell their shares to some foreign portfolio investors or fresh shares are issued to foreign portfolio investors. In both the cases, shareholding of the promoters will fall to or below 26%, SES said in a report.

Between 30 June, 2016 and 31 March, 2017, promoters have sold as much as 59.3 million shares through off-market transactions and issued shares to foreign portfolio investors on conversion of foreign currency convertible bonds, SES report said citing BSE data.

Shareholding of promoters declined from 71.27% in June-end 2016 to 52.30% as of March-end. Shareholding of foreign portfolio investors in the company rose from 13.57% to 34.5% during the same period.

“What is the plan of promoters relating to their holding in the company? Why are they diluting their stake without any communication to shareholders? Are there any backroom talks for selling their stake? While the promoters do not divulge anything, market certainly thinks so. SES is discomforted and feels that investors are not knowing what is cooking at the company,” the advisory firm said.

Fortis attributed FIIs buying its shares to “favourable outlook for the healthcare sector and the strong fundamentals of the company”.

In an email, a company spokesperson said that healthcare companies typically utilize the enabling provision for 100% foreign holding, and Fortis too has done so. This will pave the way for existing and potential FIIs to further invest in the company, the company added.

SES said the company has failed to explain rationale behind the proposal to significantly increase the foreign institutional investors’ limit to 74% and therefore, due to lack of adequate disclosures, it recommends shareholders to vote against the resolution.

On Monday, shares of Fortis Healthcare closed down 0.3% at Rs190.15 apiece on BSE, while the exchange’s benchmark Sensex rose 0.8% to close at 31,311.57 points.

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