JSPL To Revise Power Unit Sale Terms After Shareholder Pushback
Jindal Steel & Power Ltd. will come up with a revised plan for the sale of its power business within a week, a company official said to BloombergQuint in a phone conversation. A day before it opened, JSPL postponed a shareholder vote on the sale of its power business to a promoter entity.
The e-voting facility for shareholders was scheduled to open on May 21 and the extraordinary general meeting to be held on May 24. A future date for both will be intimated later, JSPL said in a filing with stock exchanges.
While it received positive feedback from investors on the sale and subsequent reduction in debt and carbon footprint, there were requests to simplify certain terms of the transaction, the JSPL filing said.
The Deal Details
On April 27, JSPL’s board approved the sale of its power business (Jindal Power Ltd.) to Worldone Pvt., a private company owned by Naveen Jindal and his family, promoters of JSPL.
Worldone was to pay JSPL an equity value of Rs 3,015 crore in cash for a 96.42% stake in JPL. The deal also involved Rs 4,386 crore in advances and intercorporate deposits made by JPL to its parent being converted into an unsecured loan. JSPL would also be restricted from selling Rs 680 crore worth non-convertible redeemable preference shares issued by JPL.
The key reasons for the sale were stated to be:
- Debt reduction using sale proceeds.
- Reduction in carbon footprint and improvement in environmental, social, and governance matrix.
- Focus on steel business.
After the deal announcement, Edelweiss Securities downgraded the stock, saying that the equity consideration of Rs 3,015 crore fell short of JPL’s fair value of Rs 9,500 crore.
Investec Securities’ report suggested a clearer structure, without redeemable preference shares and inter corporate loan, would have been a more desirable outcome.
Though Morgan Stanley said the return ratio profile of the consolidated entity will improve given JPL was a drag on consolidated numbers.
JSPL, in an investor call after fourth-quarter earnings, had said the sale of the non-core power business is essential as it contributed 33% of the debt but just 10% of operating income.
In its notice to shareholders, JSPL said 33 entities, Indian and foreign companies and financial investors, had been approached for the sale of JPL but the response was “muted”. The offer submitted by Jindal’s private company was the of highest value and accepted by the board, the notice said without divulging any further details on the value of other offers.
Yet, JSPL’s rationale to sell the power business is “unclear”, said proxy advisory firm IiAS in a report on May 12.
IiAS’ concerns included deal valuation.
- Debt reduction is neither an immediate nor a necessary concern.
- Selling the power business will not reduce ESG risks.
- A pure steel play will be more cyclical.
- Valuations are low.
“There is a pattern to these transactions,” the IiAS report said while noting that in 2020 JSPL sold overseas steel assets also to a promoter entity. The proxy advisory firm recommended shareholders vote against the sale resolution.
The Vote Is Postponed
As a related party transaction, the promoter of JSPL is disallowed by law from voting on the resolution. To pass, the resolution would need a majority of the public shareholder votes cast. Just under 40% of the company’s equity is held by public shareholders, with foreign portfolio investors at 11% and Indian mutual funds at 14%.
“We are aware of significant investor push-back. We understood their [investor] concern to be that the companies’ promoters are chipping away the functional assets, citing debt reduction and in the case of the power business, better ESG metrics. This is a related party transaction, implying that the company needed approval of a majority of minority investors for the transaction to go through, and might explain the postponement,” Amit Tandon, founder and managing director at IiAS, said in an emailed statement to BloombergQuint.
Some minority shareholders’ key concerns are about the deal structure, the JSPL official cited earlier said on the condition of anonymity. They want the company to do away with the redeemable preference shares and inter- company loans and eke out a straightforward deal, he said. JSPL intends to rework the sale plan within a week, he said.
No official comment was forthcoming from the company.
Shares of JSPL rose as much as 2.2% to Rs 409.85 apiece compared with the NSE Nifty 50 index's 0.8% rise. The stock, which snapped a two-day losing streak, has risen over 53% year-to-date.