Business Today: Editorial

The MNC Retreat

In 1998, when the prime minister announced that companies listed in India could now buy their shares back from shareholders, the stockmarkets rejoiced. With good reason. For corporate India, here was a chance to build up the barriers to protect itself from tomorrow's raiders as well as an opportunity to prop up their depressed share values. However, what the wise men who put together the buyback package never anticipated was that it would be used by multinational corporations as a route to exit the Indian stock markets. Over the past few months, a host of MNCs have announced plans to boost their holding in their Indian operations by buying back their shares from Indian shareholders. The worry is that many of these companies, enticed by the low valuations of their stock, are going in for a 100 per cent buyback, thereby paving the way for a delisting from the Indian bourses. For local investors, who aren't exactly being spoiled for choice with investment options, this isn't the best piece of news. True, they stand to make some good profits in the short term, given the apparent premium with which many of these companies are trying to seduce investors, but the worry for those who opt for the buyback is: are there enough opportunities in the market in which to deploy that cash?

It's not just minority shareholders who should be worried. The swadeshi lobby too has begun re-emerging from the given-up-for-dead Bombay Club woodwork. And this time the domestic industry has a point. Global majors are allowed into the country as fully-owned subsidiaries, they begin making cola or chips or cornflakes, gradually pile up the marketshare-and also the losses. The losses are, of course, the proverbial drop in an ocean in the perspective of the MNCs' global operations, but what they're gaining in the process is valuable marketshare at the cost of domestic players. The objective, more than making money, is to simply kill domestic competition. This may all sound suspiciously like protectionist propaganda, but fact is that if a company is under no pressure to worry about the bottomline-since it doesn't have to worry about shareholder activism-buying up marketshare becomes so much easier.

That's where shareholder accountability comes into play. If a company has to listen to shareholders overseas, there's little reason why it shouldn't in India too. If creating shareholder value is the stated objective globally, the same goal should be pursued in India too. And one needs to look no further than Hindustan Lever to justify those statements. HLL strives for growth in a flat market. It continues to be a significant contributor to Unilever's profits, and Indian shareholders are in the process duly rewarded. HLL is a classic example of an MNC that's bottomline as well as market share-focused.

Rather than allowing unbridled buybacks and 100 per cent FDI, it's time for the government to take another track. Every multinational that comes into India should be asked to offload 20-25 per cent of its holding to the public in a stipulated timeframe-perhaps three-to-five years. This may appear restrictive, and disastrous for a country that's anyway starved of foreign investment. The danger of 100 per cent owned multinational subsidiaries-not just for Indian industry, but more for Indian minority shareholders-far outweighs that fear.

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