Since Novartis has been mentioned in this thread, here's a slightly old cut-and-paste:

Reliance MF doubts Novartis' inter-group deals
14 Aug, 2008, 0600 hrs IST,Deeptha Rajkumar, ET Bureau

MUMBAI: In an unusual case of shareholder activism by a fund house, the country’s largest mutual fund (MF), Reliance MF, which holds close to 5% equity in Novartis India, has raised certain corporate governance issues, especially those relating to inter-group transactions by the pharma company.

Novartis India has inter-corporate deposits outstanding from its group companies to the tune of Rs 340 crore — as of March 2008 — which constitutes almost 76% of the company’s net worth. Under related party disclosures during the year, close to Rs 2,457 crore worth of loan transactions have been carried out with group firms.

According to sources familiar with the development, the asset management company has raised queries as to why group companies are being supported with cheap capital by Novartis. It sought clarity from the company management on the rates at which such loans have been advanced. A related issue flagged off is that if the pharma firm is not in need of surplus cash to grow its core business, then the company would be better-off by ensuring a payout in the form of higher dividends to shareholders.

The other concern expressed by Reliance MF is that if a large part of the company’s net worth is deployed in financing activities, there could be the risk of the firm being liable to be registered as a non-banking finance company (NBFC) with the Reserve Bank of India.

It is learnt that the mutual fund even raised some of these issues at the company’s last AGM. Shareholders with more than 1% stake in Novartis India are LIC (5.67%), Azim Premji (2.53%), Bajaj Allianz Life Insurance (2.72%) and GIC (1.61%), among others.



The company is understood to have questioned whether shareholders’ approval was taken to give such huge loans. It also sought information about the securities pledged by the borrowers. When contacted, a Novartis spokesperson said the company has already met representatives of Reliance Mutual Fund and clarified all the issues.

“Full disclosures have been made in our annual report of 2007-08 with regard to the inter-corporate deposits referred to by you and these have also been duly audited. Surplus funds of Novartis India are deployed on an arm’s length basis to 100% subsidiaries of the Novartis Group at market-related rate of interest and in full compliance with the applicable provisions of the Companies Act, 1956. These funds are available to Novartis India on call in case of business need or opportunity,” a Novartis company spokesperson told ET. Reliance Mutual Fund officials were unavailable for comment.

Regarding the issue of rental income received from group companies falling significantly, Novartis clarified that this could be attributed to the fact that group companies have moved out of Novartis India premises to larger ones elsewhere and the vacant premises have been rented out to a third party. Novartis India scrip ended 2.75% lower at Rs 302.50 on BSE on Wednesday.

Originally posted by rapidriser Originally posted by bassein Since Novartis has been mentioned in this thread, here's a slightly old cut-and-paste: Reliance MF doubts Novartis' inter-group deals 14 Aug, 2008, 0600 hrs IST,Deeptha Rajkumar, ET Bureau MUMBAI: In an unusual case of shareholder activism by a fund house, the country’s largest mutual fund (MF), Reliance MF, which holds close to 5% equity in Novartis India, has raised certain corporate governance issues, especially those relating to inter-group transactions by the pharma company.   Wonder if they will pose the same questions to Reliance & ADAG group companies where such transactions run into tens of thousand crore rupees.

Not to forget the multiple offices registered at the same address.

Hi Vivek, Could you please elaborate on your thoughts around Bata's growth?  Their top line has remained flattish over the last 5 years. Is there any strategic move (like Reliance deal) which will help perk up their numbers?

Thanks for sharing your thoughts.