In the first-ever auction of 'enemy property' that the Indian government has held since the 1971 Indo-Pak war, rights shares of Tata Steel were sold to an Indian investment firm for Rs 485 per share against the rights issue price of Rs 300 per share.
The cum-rights price of Tata Steel currently stand at Rs 862. The auction resulted in a profit of Rs 58.67 lakh (Rs 5.867 million), which will be invested in government bonds and treasury bills, says Dinesh Singh, custodian of enemy property for India.
Singh told Business Standard: "The government cannot allot funds for us to such subscription, which left us with only two choices. We could have chosen to ignore the issue as we had done in the past, which would have meant a loss to the owner of the shares. However, we decided to auction them if the price was right and the method transparent."
The custodian, who is the official caretaker of all moveable and immovable 'enemy' assets in the country, held 135,000 shares of Tata Steel.
These shares were entrusted to a custodian (chaired by a Deputy Commissioner level officer of the revenue department) after several people fled the country during the Indo-Pak war, leaving their assets in India to accept either Pakistani or Bangladeshi citizenship.
In the recently-concluded rights issue of Tata Steel, existing shareholders were allotted one share of the company for every five shares held by them at a price of Rs 300 per share (face value of Rs 10 each) and an additional nine cumulative convertible preference shares (CCPSs) of Rs 100 each for every 10 shares held.
The custodian was allotted 27,000 equity shares and an additional 109,000 CCPSs for the 135,000 shares held by it. The CCPSs, which were allotted at Rs 100 each, were sold at Rs 108 per share.
Six of these CCPSs will be compulsorily converted into one equity share of Rs 10 each on September 1, 2009, while the remaining would be consolidated and converted into shares and can be sold in the market at a price to be decided by the company.
The custodian has already invested nearly Rs 200 crore (Rs 2 billion), the income generated from bonuses and dividends from a large number of shares of 550 listed and unlisted companies held by it, under different Reserve Bank of India schemes.
Singh has already put forward a proposal to the Ministry of Home Affairs to auction all the moveable property like shares and debentures held by the custodian.
"The money which is generated by the auction can be returned to those who are still entitled for a payment under the government's ex-gratia scheme formatted in 1971," he said.
An ad-hoc sum of Rs 70.99 crore (Rs 7.099 million) has so far been paid as ex-gratia relief to those Indian nationals and companies whose assets in Pakistan or Bangladesh were seized by the governments in the respective countries in the conflict of 1965, and who had notified their property with the Custodian of Enemy Property.