The Tatas have 13 per cent stake in ACC while the rest is shared by the local and foreign institutional investors. Ten per cent of company's equity belonging to the scam-accused Harshad Mehta has been attached by the Special Court following the 1992 securities scam. "The issue of warrants is in accordance with the Tata policy to increase its stake in the company as it did in the case Telco and Tisco," top ACC officials told this newspaper.

The ACC board meet will finalise the size of the rights issue, terms of warrantconversion and other related things. In fact, the ACC board is dominated by Tata appointees and its chairman Pallonji Mistry had announced that he favours Tatas to increase its stake in the company due to takeover threats. The preferential allotment will increase the stake of the Tatas, ending months of speculation on the exact status of the giant cement corporation vis-a-vis the Tata group.

Following the announcement, the ACC scrip fell by 7.98 per cent to close at Rs 828 on the NSE and Rs 827.25 on the BSE. The scrip fell from the day's high of Rs 903 and it clocked a volume of 11.9 lakh shares on the local bourses.

The preferential allotment will only increase the stake of the existing promoter group, while the small shareholders of the company will not benefit by the move as no open offer is needed under the preference share guidelines. It may be recalled that several multinationals, including Unilever, had increased their stakes in Indian companies to 51 per cent at a lower price through preferenceshare route.

The financial institutions, one of the major shareholders of the company, have in the past played a passive role and passed all the resolutions with out raising any questions. "The rights issue has come at a time when the cement industry is going through a rough phase. Similarly, the stock markets are also in a bearish phase. It is quite surprising to see this unusual development," says a Mumbai-based analyst.

The company was always a takeover target due to the low promoters stake. In fact, due to sagging stock markets and the recent consolidation among the cement companies, ACC, say analysts, has decided to increase the promoters stake through the issue. "This is a move by the promoters to enhance their stake, considering that shareholders have very little interest in the stock," says B Shah, a BSE broker.

The previous rights issue by ACC was equally controversial as the company raised funds at a very high premia. Many shareholders did not opt for the issue which led to the promotersmaking up for the shortfall. "The decision to sub-divide the shares will have a positive impact on the liquidity at the counter. However, the impact should be marginal," Shah said.

Analysts say that the servicing of the equity could be a problem for the company, since last year's dividend outgo was more than its profits.