Minority shareholders cry foul despite apparent straightforward deal

Minority shareholders of Aviva NDB Insurance Plc yesterday cried foul over the alleged lack of transparency and difference in price per share paid in the change of ownership in the unlisted holding company.

The furore is because Asian giant AIA paid or NDB Group and Aviva got a higher price for a 100% stake in unlisted Aviva NDB Holdings Lanka Ltd. (ANHL) or the Special Purpose Vehicle (SPV) which holds an 87.27% stake in the listed Aviva NDB Insurance. Aviva held a 58.44% stake in unlisted SPV.



This is amidst paying what they described as very low price for a direct stake in Aviva NDB amounting to a 5% stake or 1.5 million via the market from NDB Capital Holdings at Rs. 349 per share. The stock on Tuesday gained by Rs. 8.90 but yesterday closed at Rs. 330, down by Rs. 19 or 5.44%.

Since there was no disclosure of actual price per share paid by AIA for the control of unlisted parent of Aviva NDB apart from deals within deals such as a bancassurance and NDB Capital buying 84% of NDB Aviva Wealth Management Ltd., held by unlisted parent, the entire transaction had left a bad taste among minority shareholders owning around an 8% stake in listed Aviva NDB.

With their own assumptions some had acquired Aviva NDB shares from the market prior to and soon after the original MOU was signed in late September, with hope that they could make a killing during a probable mandatory offer from AIA.

“Given the stature of AIA, Aviva, and NDB, greater transparency and ethical treatment of minority shareholders of listed entity must have been considered,” a broker siding with aggrieved parties told the Daily FT.

However, the SEC law doesn’t provide for a mandatory offer when substantial ownership changes in unlisted companies. The same principle had been applied to previous cases of this nature. Its rules on takeovers and acquisitions apply only to listed companies. SEC at present doesn’t regulate unlisted companies.

Minority shareholders with relatively larger shareholding had made representations to the SEC recently as well as written to both AIA and NDB Group that a mandatory offer was warranted. Another suggestion was for AIA to take up the required direct stake from minority shareholders at a higher price instead of buying it from NDB Capital Holdings. The rationale for the latter proposal is if NDB Group has confidence in AIA to be striking a 20-year bancassurance deal, then why sell its direct stake in the listed Aviva NDB Insurance.

Some said the higher price paid for stake held by unlisted parent was to partly set off connected deals.

In a filing to the CSE, the NDB Group said it received equivalent of $ 59 million in Sri Lankan Rupees on deals connected to listed Aviva NDB Insurance and unlisted Aviva NDB Holdings. As per yesterday’s exchange rate, the figure could be Rs. 7.7 billion. AIA said it invested $ 109 million in acquiring control of unlisted parent and 5% of listed entity.

NDB Capital acquired an 84% stake in NDB Aviva Wealth Management Ltd., held by unlisted parent. NDB also entered into an exclusive 20-year bancassurance agreement with listed Aviva NDB Insurance. Financial considerations for each of these deals weren’t disclosed by either parties.