The proposed issue of 90 lakh preferential warrants, announced in December, was aimed at generating funds for the company and raising the promoters' stake (the Tatas) to about 20 per cent from the current level of around 13 per cent.

FI sources don't expect any confrontation with the Tatas at the EGM. FIs together hold more than 25 per cent share in ACC and to pass this special preferential issue resolution, the company needs to muster the support of at least 75 per cent stakeholders. ``With all FIs resolutely sticking to their guns, it is futile for the company to go ahead with the issue,'' FI sources said.

However, FIs are expected to support the resolution for the rights issue. ACC will issue rights shares in the ratio of 1:4 at Rs 55 per share (Rs 10 paid up). ``Ouropposition is mainly to the preferential offer at a low price to the Tatas. We will support the rights issue. This is fair towards all the shareholders and the company will also get funds for expansion and modernisation,'' FI sources said.

FIs are a crucial shareholding group in ACC as they hold around 26 per cent and can block the resolution at the EGM, if they so wish to. At the same time, ACC would also require to borrow from the FIs to fund the expansion plans that its board has lined up.

The financial institutions began questioning the preferential allotment on the basis of what was perceived as the low price of the issue, which, as the Tatas have pointed out, has been priced exactly in accordance with Sebi guidelines. Sebi guidelines state that the issue price of a preferential offer has to be arrived at on the basis of the average of the closing price of the scrips for the six months prior to the issue.

Apart from the pricing, another controversial aspect of the preferential allotment is the factthat while in 1995, in a prospectus for a rights issue, the company claimed it was "professionally managed" and therefore no lock-in should apply to shares owned by any holder, this time in a notice to the stock exchange the company has claimed that it wishes to issue shares on a preferential basis to its "existing promoters".

The Tatas came out with a defence against this, stating that the group has since hiked its stake in the company, and that it had nominee directors on the board of the company. The Tata group, in its defense, has said the proposed stake hike in cement major ACC through a preferential allotment will improve the cash position of ACC and, hence, an immediate requirement of funds infusion into it.

A statement issued by Tata Sons finance director NA Soonawala last month implied that it is because ACC does not have a comfortable funds position to meet its expansion and modernisation requirement that the preferential allotment route has been preferred. Soonawala had said the Tatas havealready increased their stake to around 14 per cent through creeping acquisition, and any additional mop-up of shares would have triggered the takeover code.

While the Tatas do not require a a 34 per cent stake in ACC (which would be the Tata holding if they were to make a 20 per cent open offer), market purchases would not benefit the cement major as these funds would not flow into ACC's coffers.