Co seeks shareholder's nod for electricity purchase from parent as the volume of transaction crosses set threshold levels
When a listed subsidiary strikes a deal with its parent, does it require a shareholders' nod? Yes indeed, if the transaction is bigger than the set threshold levels.
Tata Steel's listed subsidiary Tinplate Co of India has sought shareholders' approval for buying electricity from its parent company. Tinplate buys electricity from Tata Steel for its captive consumption at its plants in Jamshedpur and also for its township. The sale price is being regulated by Jharkhand State Electricity Regulatory Commission.
A shareholders' nod was necessary as it was treated as a related party transaction and the volume of transaction is likely to cross the threshold level set for seeking approval for such transactions.
"In 2015-16, the company's purchase of power from Tata Steel amounted to Rs 75.94 crore. Considering historical escalation of rates of power tariff, the total power cost is likely to exceed the threshold of Rs 85.19 crore.
Consequently, this related party transaction with Tata Steel may come under the purview of material related party transaction as per explanation to regulation 23(I) and would thus require shareholders' approval," Tinplate has told its shareholders asking for their nod to the resolution.
Regulation 23 of the Sebi listing norms defines related party transaction as transfer of resources, services or obligations between a listed entity and a related party, regardless of whether a price is charged.
A transaction with a related party is considered material if it is entered into individually or taken together with previous transactions during a financial year, exceeds 10% of the annual consolidated turnover of the listed entity as per the last audited financial statements.
The regulations also require a company to provide materiality thresholds for transactions beyond which approval of the shareholders through resolution will be required.
Tata Steel in February fixed the threshold at the same of 10% level at which disclosure is required.
Related parties are required to abstain from voting on such resolutions.
The issue brings to fore dependency of its subsidiaries like Tinplate Co on Tata Steel which holds 74.96% equity stake and the continued support Tata Steel provides them despite the parent itself being not in good financial health.
The troubled existence of Tinplate had earlier forced Tata Steel to explore merger options internally though it wasn't pursued eventually.
Tinplate's troubles still exists as seen in the fourth quarter.
Its net profit declined 42.44% to Rs 7.16 crore in the March quarter as against Rs 12.44 crore year ago while sales declined 29.96% to Rs 172 crore.
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 "Co seeks shareholder's nod for electricity purchase from parent as the volume of transaction crosses set threshold levels")
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