Jindal Steel and Power Ltd (JSPL) has sought shareholders’ approval to sell 96.42 per cent of shares of Jindal Power Ltd to Worldone Pvt Ltd, a enterprise owned by promoter group Jindal family. Proxy advisory firms have raised issues against JSPL’s revised proposals to sell its energy business enterprise to a promoter group enterprise. JSPL’s Extraordinary General Meeting (EGM) is scheduled for 3 September 2021, to seek shareholders’ assent for Jindal Power stake sale to Worldone. In May this year, JSPL had sought shareholders’ approval to divest the stake in Jindal Power for Rs 3,015 crore in a money deal.
Also study: Investors asked to vote against JSPL program to sell 96.42% in Jindal Power
However, a day just before the meeting on 21 May 2021, the enterprise cancelled the EGM due to investor issues. JSPL has obtained valuation reports from two independent valuers. It also appointed Y H Malegam, Chartered Accountant (ex-President of ICAI and ex-member of the Board of RBI) to evaluation the valuation reports and provide fairness evaluation on the very same. The transaction worth is larger than the worth arrived at by all the aforesaid independent valuers.
Here’s what proxy advisory firms have to say about the JSPL revised deal
InGovern Research Services mentioned that the preceding proposal of May 2021 was not in the interest of shareholders due to the undervaluation of Jindal Power compared to industry valuations, and the continued economic association among JSPL and Jindal Power. It mentioned that the general consideration of Rs 7,401.38 crore paid by Worldone values Jindal Power at an enterprise worth of Rs 9,730 core. With the 96.42 per cent shareholding in Jindal Power held by JSPL, this would worth the one hundred per cent equity and redeemable preference shares at Rs 7,676.18 crore.
With the revised transaction, InGovern has advisable shareholders to vote to approve the transaction as the enterprise worth has improved to close to industry comparable valuation. There would not be any continued economic association among JSPL and Jindal Power also, Jindal Power would cease to be owned by JSPL.
American proxy advisory firm Glass Lewis has voted in favor of the revised proposal, highlighting a couple of disclosure issues. According to the firm, JSPL has not disclosed the share buy agreement, nor disclosed the valuation basis on which the consideration quantity was accepted by the enterprise. Glass Lewis believes that management of the business enterprise and the choices related with business enterprise operations are most effective left to management. It also mentioned that board members can be held accountable on these troubles when they face reelection.
Glass Lewis mentioned the proposed transaction seems pretty affordable. There do not seem to be any problematic contingencies attached to the terms of the transaction. The enterprise has restructured the transaction to quell investor issues and for factors of simplification.
Another advisory firm, ISS Proxy has also voted in the favor of the revised proposal. However, it also mentioned that the revised give may possibly nonetheless not attract universal help as issues stay on the buy value, lack of transparency about the bidding method and the failure to disclose an independent valuation report. On the flip side, it supports the proposals as it believes that the revised give suspends all economic linkages among JSPL and Jindal Power, which reduces the overhang of future defaults and associated party transactions. The sale will facilitate the enterprise to spend off current debt and deleverage the balance sheet. It also added that provided the robust strategic rationale, certified help is deemed warranted for the proposals.
On the contrary, Institutional Investor Advisory Services India (IiAS) has advisable voting against JSPL’s proposal to divest its energy business enterprise Jindal Power to promoter group enterprise Worldone. Terming it a associated-party transaction, the firm mentioned shareholders have the energy to cease this, when raising the query: “Is JSPL selling family silver under the garb of debt reduction?”