Nykaa’s promoters have successfully been able to change the Article of Association (AoA) to give themselves special powers.
What are the powers?
- As per the previous AoA, the promoter group had the right to nominate up to 50% of the directors on the board if they held in excess of 25% of the company’s paid-up share capital. As per the revised AoA, the promoters Falguni Nayar, Sanjay Nayar, the Falguni Nayar Family Trust, and the Sanjay Nayar Family Trust will have the right to nominate up to 1/3rd of the number of directors as long as they are classified as promoters, irrespective of the percentage of their shareholding in the company.
- The promoters have also got themselves the right to nominate the Board’s chairperson without any minimum shareholding threshold.
How could they give themselves such special rights despite Nykaa being a public listed Company?
- Above proposals were put up for vote in Company’s AGM dated February 9, 2022
- Almost 80% of institutional investors voted against these proposals.
- However, the proposals still went through as 100% of the promoters and the non institutional voters voted in favor, who together own 90.9% of the Company.
- 52.4% of the company is owned by the promoters;
- 9.1% by the institutional investors; and
- 38.5% by the non-institutional investors – of this retail has about 13% and balance by the private equity investors and others.
It’s interesting to note how many new age companies continue to operate at their own discretion without much regard to the overall corporate governance expectations.
The fact remains that many private equity investors have made them immune to care too much about the generally established practices.
As would have been expected, market gave the answer in it’s own way and the stock declined by 9% the following day and continues to fall thereafter.
Promoters and investors however, may not be much concerned with that –
- They have been able to retain significant rights.
- Despite the fall, the Company continues to be valued at almost $10 bn, which is significant given the underlying operational and financial dynamics.