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Are the promoters of Jindal Steel and Power (JSPL) attempting to take private control of one of the subsidiaries of the company at one-fourth of its actual price and cause loss to the shareholders?
JSPL has a fully owned subsidiary called Jindal Power (JPL). The JSPL has now sought shareholders nod for the divestment of JPL in favour of Worldone Pvt Ltd, a company owned by the Jindal family.
According to Chennai-based shareholder advisory firm Ingovern, the enterprise value of JPL is in the range of ₹10,000-12,000 crore but the promoters want to take control of 96.42 per cent of the company for just ₹3,015 crore.
Hence, Ingovern has asked JSPL shareholders to reject the divestment proposal. Further, Ingovern has also asked shareholders to reject the conversion of JPL’s inter-corporate deposits and capital advance to JSPL into loans and to treat the divestment proposal as a related party transaction.
JSPL’s meeting will be held on May 24 and the company has asked shareholders assent via e-voting.
‘Huge discount’
According to Ingovern, the sale price of ₹3,015 crore is far below the market price of the recent comparable transactions including Adani Power’s 1,370-MW plant valued at ₹4,792 crore (₹3.49 per megawatt) and NTPC’s 600-MW valued at ₹1,900 crore (₹3.17 per megawatt).
“This proposal fails to explain in a compelling manner why JSPL is selling JPL, given that it is a healthy company with a positive future, at such a huge discount to comparable market values. The rationale provided by JSPL is specious at best and outright falsehood.
“The proposal is facilitating the sale at a low price for a soon-to-be profit-making, fully operational subsidiary. This will be against the interest of minority shareholders of JSPL,” Ingovern said. In fact, Ingovern says that even JPL had valued the captive power plants of JSPL at much higher valuations.
“JSPL and JPL entered into the Letter Agreements for the purpose of purchase of captive power plants of the company situated at Angul and Raigarh. The advance amounts paid by JPL to JSPL to acquire the captive plants value them much above what JSPL is currently getting for selling JPL,” Ingovern said in its advisory report.
When contacted, a JSPL spokesperson dismissed the report as “absurd”as it erroneously compares the equity value of JPL with the enterprise value of others in the sector.
JSPL trashes report
The report is selectively comparing companies for the deal. It does not take into account the numerous power companies stuck with NCLT, which are available even cheaper, he said.
On the point of advances by JPL to JSPL, it was done two years ago and the money has to be repaid by JSPL. Now JSPL also enjoys five per cent coupon rate on the amount that JPL has to repay JSPL, which will give ₹350 crore every year and over ₹6,000 crore in seven years. Thus, the comprehensive picture has to be taken into account, the spokesperson said.
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