MUMBAI: Altima India Master Fund (AIMF), which holds 14.39 per cent stake in The Indian Film Company (TIFC), is rooting for the removal of Television Eighteen managing director Raghav Bahl and Alok Verma as directors. The letter was sent on 22 December, 2008.

Kelusa Master Fund, which owns 6.36 per cent in TIFC has also joined hands with Altima India Master Fund and together the two funds own 20.75 per cent in TIFC. Moreover, additional shareholders representing more than 11 per cent of the company’s shares have informed IFC Requisition Group (IFCRG) that they will also be voting in favour of all of the resolutions, thus taking consent from 31.75 per cent shareholders. IFCRG is also in discussions with a number of other shareholders who have expressed concerns in relation to the company.

AIMF has asked for the duo to be replaced with its own nominees Aashish Vyas and Atul Setia.

In response to the same, TIFC, in its letter to shareholders, has asked all board members to unanimously vote against the proposed resolutions at the board meeting, which is to be held on 5 February.

While the company’s board has tried to engage with AIMF to discuss its concerns but AIMF has indicated that it is unwilling to respond unless Bahl and Verma are removed.

AIMF has indicated that it would like TIFC to consider a share buy-back programme or to distribute any excess cash it may have as special dividends. However, it has not provided any formal recommendations, or detailed analysis.

AIMF has said in its letter, a copy of which is with Businessofcinema.com, that whilst IFC has invested in a number of movies which have achieved impressive box office performance, these have not translated into returns which are acceptable to shareholders, bearing in mind the risk profile of the business. “Consequently, since IFC shares were admitted to AIM at 100 pence, their performance has been extremely disappointing. Before the EGM was requisitioned on 22 December 2008, IFC shares were trading at 25.5 pence, representing a discount of nearly 75 per cent to the price at admission and the Company’s stated net asset value per share at 30 September 2008 (99.4 pence),” AIMF said.

Against this background, IFCRG’s objective is to ensure that IFC shares are appropriately valued and liquid. IFCRG has been unable to persuade the company to provide sufficient information to enable investors to make a proper assessment of IFC’s performance and prospects. Hence as a result, IFCRG now considers that the removal of two directors and the appointment of two new directors is necessary to ensure that the actions of the Board of IFC take full account of the interests of all shareholders.

Moreover, IFCRG has also stated that it has no interest in taking control of the company. IFCRG believes that IFC’s very poor share price performance largely reflects a market perception that the Company’s financial performance has not matched management’s claims to operational success.

An analysis of financial results published by the company shows that, in the first 18 months of operation, it produced a total net profit of £3.4 million (of which £2.0 million was earned in interest) on initial equity capital of £52.8 million (net of issue costs). On the basis of this, it is not possible for shareholders to draw any firm conclusions about the reasons for the low returns being achieved.

Members of IFCRG have mulled over the apparent disconnect between impressive box office performance and poor financial returns due to lack of clarity of the information provided.

IFCRG has said that if the resolution for removal of Bahl and Verma are passed, then the new directors will seek the appointment of an appropriate independent firm to conduct a review of the business, including an assessment of past performance and future strategy, and to make recommendations with a particular focus on the interests of shareholders, a review of the company’s accounting policies and methodology; a review of the company’s financial position and needs, including capital adequacy, the potential use of leverage and dividend policy; and an evaluation of how the company can enhance communication to demonstrate the value of the business.

In its letter to shareholders, TIFC chairman Shyam Benegal has said that the board remains committed in ensuring that it maximises value for all shareholders. He also urged shareholders to vote against all the resolutions, which are to be proposed at the EGM to be held on 5 February 2009.

TIFC board is of the opinion that the proposed removal of the two directors, at a time when the company is successfully executing its stated strategy, would be detrimental to the company’s business and prospects. TIFC currently does not have significant excess cash due to its ongoing commitments for the film projects in progress nor is debt financing easily available given the current state of the financial markets. The board has said that any immediate distribution of cash for buy back or special dividends is not financially prudent, may negatively impact its business and would not benefit shareholders in the company in the medium or long term.

TIFC also believes that AIMF’s proposed directors do not possess the specialist knowledge of the core Indian media sector required to oversee the company’s business and performance of the Investment Manager.