Indian commodities giant Vedanta Ltd. has witnessed a rare display of mistrust on the part of institutional investors.
A majority of institutional investor votes cast at the annual general meeting, held on August 10, was against the adoption of the annual financial accounts and the appointment of three independent directors, including a former securities market regulator.
Institutional investors hold nearly a fifth of the company’s shares (20.89%), of which foreign portfolio investors are the main shareholders (10.29%). Overall, the public stake in Vedanta is 34.50% and the entities led by developer Anil Agarwal hold 65.18%.
A little more than half, or 50.60%, of the votes of institutional investors voted against the adoption of autonomous and consolidated financial accounts for the 2020-2021 fiscal year. A large number of shares of institutional investors were voted, 77.54%, which makes the veto important.
To be clear, the resolution was passed and the accounts passed through votes from the promoters and the non-institutional public.
At the AGM, shareholders also had to vote on four resolutions concerning the appointment of three and the renewal of an independent director.
The renewal of UK Sinha, a former securities market regulator, was rejected by institutional shareholders. 75.78% of the shares held by institutional investors were voted. An overwhelming majority was against the resolution. 70.70% to be precise.
Once again, the special resolution was passed with the support of the proponent and the non-institutional public.
The appointment of Padmini Somani as independent director for the first two-year term was supported by institutional investors but that of Dindayal Jalan and Akhilesh Joshi, both independent directors for the first term, did not gain support. majority of institutional votes cast. However, all of the resolutions were passed thanks to the support of the promoter and the non-institutional public.
Institutional shareholders are expressing their exasperation with the governance of the company, said Amit Tandon, founder and CEO of the IiAS voting advisory firm.
In their pre-AGM reports, the two voting consultancies IiAS and SES had recommended that shareholders vote against the adoption of the accounts because of the auditor’s qualification on internal financial controls.
Vedanta’s independent auditor’s report for fiscal year 21 included a qualification that “a material weakness has been identified in the effectiveness of the company’s internal financial controls”.
This material weakness was related to the comparative analysis of the terms of loans and guarantees between the company and its subsidiaries or affiliates. This could “possibly result in the granting of loans and the issuance of guarantees in a manner that could affect the recognition, measurement and disclosure of these transactions in the financial statements,” the report said. listener.
SR Batliboi is the company’s auditor and his renewal this year was supported by 100% of the institutional votes cast.
Voting against independent directors
IiAS and SES also recommended that shareholders vote against three of the four independent directors.
Dindayal Jalan and Akhilesh Joshi both worked in various companies and subsidiaries of the Vedanta Group in managerial positions such as CFO and Managing Director, until 2016.
“We do not support former executives who sit on the board with their former supervisors, regardless of whether or not those executives have completed a three-year chill period. Rather, the board should consider appointing them to as a non-executive director, ”reports the IiAS. noted.
As to why shareholders should vote against the reappointment of former SEBI UK chairman Sinha, IiAS said: “He has been on the board since March 13, 2018. We believe that the current independent directors have not protected the rights of minority shareholders by maintaining a position and enabling cash flow support to the group through the company and HZL (Hindustan Zinc). We therefore do not support the reappointment of Upendra Kumar Sinha as independent director on the board of directors of Vedanta. “
SES had recommended voting against Sinha’s reappointment because of concerns about the auditor’s qualification. “… since he is an independent director as well as a member of the audit committee and obtains qualified accounts from the auditors due to transactions with related parties, he must be accountable to the shareholders of such a state of affairs. “
BloombergQuint has contacted Vedanta for comment and is awaiting a response.
An earlier version of the story has been updated to also include the views of the voting consultancy firm SES.