Confirming the financial institutions' resolve to defeat the resolution on preferential allotment, IDBI chairman GP Gupta told The Financial Express: "We are not supporting the preferential allotment to the Tatas. If funds infusion is required into ACC, it could be done by increasing the size of the rights issue."

The financial institutions, with around 26 per cent stake in ACC, have the crucial blocking majority as the special resolution for the preferential allotment will require approval from 75 per cent of the shareholders, present and voting.

An ACC director said that any official decision on withdrawal of the resolution can only be taken at the company's board meeting that willprecede the EGM.

IDBI's Gupta felt that the gap between the allotment price (of Rs 110 per share) and the market price has narrowed down considerably, and hence the use of preferential allotment as an instrument to raise funds is not justified.

"If the company is keen on raising funds, it should increase the size of the rights issue," Gupta added. However, the IDBI chief refused to comment on whether the financial institutions will renounce their rights entitlement in favour of the Tatas in case the company opts for a larger rights offering.

At the time of the announcement of the preferential allotment, the allotment price was at a 30 per cent premium to the market price, but since then the gap has narrowed down considerably.

With 10 per cent of ACC's equity stake lying with the custodian (the tainted shares of Harshad Mehta), ACC has little option but to withdraw the resolution from Thursday's meeting. "With all FIs resolutely sticking to their guns, it is futile for the company to go ahead with theissue," an IDBI executive director said.

It could not be learnt from the Tatas whether the group holding company Tata Sons was willing to pay up a higher preferential allotment price, in case it is acceptable to the financial institutions.

A 30-35 per cent hike in the preferential price will result in an additional outgo of just around Rs 35 crore for the Tatas, an analyst said. ACC was to issue 90 lakh naked warrants to the Tatas at a price of Rs 110 each.

The controversial preferential issue is aimed at generating funds for the company and would simultaneously raise the promoters' stake to around 17.8 per cent from around 14 per cent at present. The Tatas were planning to mop up another 2 per cent from the market later.

A senior director of IDBI said: "Not only have we informed the management of ACC that FIs will find it difficult to support this preferential issue, we believe that the management has been receptive to our views and will not press forward with this issue."

IDBI, along with threeother institutions -- LIC, UTI and GIC -- have jointly decided to oppose the preferential shares issue, in case the company eventually decides to go ahead with it.

ACC was planning to raise Rs 289 crore through the twin issues to finance its expansion and acquisition plans. The rights issue is meant to bring Rs 189 crore into ACC.

INSIGHT
Institutions need to do some explaining

With FIs opposing the preferential allotment owing to their holding in excess of 25 per cent, the resolution is unlikely to go through and hence will not be put to vote. ACC needs cash for expansion of its Wadi plant which should not cost more than Rs 550 crore. The funds should not be a problem as rights and sale of power plants will mean that reliance on debt will be low. The preferential offer would have resulted in unservicable equity. Though FIs' stance on the issue was known, the settlement of issue will result in a better price. The nominee of FIs can at least do the favour of explaining the reason foropposing the preferential allotment.