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Proxy advisory SES raises red flag over JSW Steel’s ₹100-cr related-party transaction

Tanya Thomas Mumbai | Updated on January 12, 2018

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‘Transferring benefit to the promoters at the cost of non-controlling shareholders’

Proxy advisory firm SES has raised red flag over related-party transactions that involve a transfer of ₹100 crore from JSW Holdings to other companies held by Sajjan Jindal and a pledge on 12.5 crore shares of JSW Steel that would guarantee these loans.

At its upcoming annual general meeting, Sajjan Jindal-promoted JSW Holdings will ask minority shareholders to approve four related-party transactions that SES believes will be against the interest of the company’s public shareholders. According to an SES report on the AGM’s agenda, the firm said: “The company is providing loans in the guise of group companies to a company owned by the promoter’s wife. SES is of the view that the company is transferring benefit to the promoters at the cost of non-controlling shareholders.”

At question is a loan of ₹25 crore to JSW Techno Projects Management and a ratification of a past loan of ₹75 crore; JSW Holdings also wants its shareholders to agree to a pledge on 12.5 crore equity shares that it holds of JSW Steel, another group company, as security for loans taken by JSW Techno Projects and other group companies.

SES argues that JSW Holdings has “failed to disclose that the borrowing company is loss-making with negative net-worth. Shareholders cannot be throwing good money after bad money purely for the benefit of promoters.”

SES said the pledge would result in a cumulative liability of up to ₹3,424.74 crore, considering that the market price of JSW Steel’s share is around ₹202 currently.

“In case the company defaults on repayment of financial facilities availed/proposed to be availed, the pledge of shares can be invoked by the lenders. This may result in substantial loss for the shareholders of JSW Holdings” at the cost of other promoter group companies, it said.

‘Why no direct transfer?’

SES also found that in March 2015, JSW Techno Projects had invested ₹1,386 crore in debentures of JSW Investments, a company held by Sunita Jindal, Sajjan Jindal’s wife. The shareholder advisory has also raised questions about why the money was not transferred directly to Sunita Jindal’s company.

SES has also recommended that shareholders of JSW Holdings vote against the reappointment of Sajjan Jindal to the company’s board.

SES found that as Chairman, Jindal had not attended the last three of the company’s AGMs and had only attended half of all 14 board meetings held in the last three years.

A spokesperson for JSW Holdings did not respond to an email requesting comments on the findings of the report.

Published on June 29, 2017

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