KIAL may soon cease to be a ‘Deemed Govt Company’

KIAL Promotion Society set to buy Rs100 cr shares through pvt placement

THIRUVANANTHAPURAM: The Government-Opposition debate on the need to subject the financials of Kannur Airport to Comptroller & Auditor General (CAG) audit is taking an interesting turn.

Kannur International Airport Ltd (KIAL) may soon cease to be a ‘Deemed Government Company’ thus rendering the controversy regarding the applicability of audit by Comptroller & Auditor General (CAG) of India irrelevant.

As per official records of the company, KIAL has already approved private placement of one crore shares face-valued at Rs100 a piece to KIAL Promotion Society at a premium of Rs51 per share thus taking the value of the deal  to Rs151 crore.

Even as CAG has been trying to dig its heels in on its right to audit KIAL, the airport company in an utter defiance to the CAG stand, went ahead to sign a five-year audit contract with Deloitte Haskins and Sells for a decent fee of Rs1.07 crore plus tax, thus removing the empannelled CAG auditor unceremoniously from the job.

There are no details on the structure of KIAL Promotion Society available to businessbenchmark.news other than the fact that a top company official informed this portal that it is a charitable society promoted by the government in a view to selling shares directly to retail investors, an exercise that can’t be undertaken by the company easily.

The official said the private placement of shares could take place any time from now and this will dilute the combined stake of State Government and the government companies from 57 per cent to just over 52 per cent – very close to the 51 per cent threshold. Government and government owned companies together used to enjoy more than 65 per cent towards the end of 2017-18 financial year.

Interestingly,  further share issues worth just Rs43 crore (face value) could turn the tables and could very well bring down the holding of Government and government-owned companies to below the 51 per cent-mark helping the company shed the curiously debated Deemed Government Company tag.

The paid-up capital of the company (as of FY18 end) is Rs1210.50 crore, which will grow to Rs1310.50 crore once the private placement deal is closed. Talking to businessbenchmark.news the official also hinted that the company is busy working on raising its paid-up share capital substantially as KIAL enjoys sufficient room to grow with an authorized capital as large as Rs3500 core.

“We are not in favour of increasing the debt component, which is currently at Rs892 crore, (as per available data) in a big way. We are getting a lot of enquiries even from overseas investors for share capital subscription,” he added.

KIAL is not a government company because the Kerala State government directly owns only 33.03 per cent in the company (as of FY18 end) but qualifies to be a Deemed Government Company (as per erstwhile Companies Act) since other government companies jointly own another 32.08 per cent taking the combined holding to 65.11 per cent – well above the 51 per cent threshold.

As per records, NRIs hold 20.39 per cent in KIAL with Yussaffali alone owning 8.96 per cent, whereas banks’s share is put at 7.99per cent as of FY 2018.

[According to Section 2(45) of the Companies Act, a ‘Government company’ means any company in which not less than 51 per cent of the paid-up share capital is held by the central government, a state government, or partly by the central government and partly by one or more state governments.]

Opposition argues that CAG audit is required for KIAL currently by virtue of the company being an ‘erstwhile’ Deemed Government Company though there is no provision for Deemed Government Company under the [extant] Companies Act 2013.

But Ministry of Corporate Affairs (MoC) has amply clarified through a circular in 2014 that the Section 619 (B) that defined a deemed government company in the Companies Act 1956 –still stands unaltered and hence KIAL continues as a Deemed Government Company for audit purpose, attracting CAG audit under Section 19 of CAG (DPC) Act 1971 and Section 143 (6) and 143 (7) of Companies Act 2013.

The said prerogative of CAG to audit KIAL’s account is being challenged by the KIAL management as well as the government on the ground that there is no provision for Deemed Government Company under Companies Act 2013 and this debate has been grabbing the headlines and consuming the channel time in a big way – with government and KIAL on one side and the Opposition and those challenging the KIAL arguments on the other.

 

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