Jindal Steel and Power Ltd. revised the terms for selling its power unit to a promoter firm after analysts and proxy advisers raised concerns over valuations and related-party transactions.
According to the earlier structure approved by on April 27 by JSPL’s board:
Worldone would have paid Rs 3,010 crore in cash.
Jindal Power’s Rs 6,440 crore debt would have been transferred to Worldone.
Inter-corporate deposit of Rs 4,390 crore extended by Jindal Power would have been converted into an unsecured loan.
Redeemable non-convertible preference shares worth Rs 7,000 crore issued by Jindal Power the parent in January 2021 would have been honoured as per issuance terms—5% coupon and redeemable over the next 20 years.
In the revised offer, Worldone will now pay Rs 4,390 crore for redeemable preference shares to JSPL and take over the liability of inter-corporate deposits. The inter-corporate loan will no longer reflect in JSPL's books and the payment of reedemable shares also will be made upfront, said a senior JSPL executive on the condition of anonymity as he not authorised to speak to the media.
According to BloombergQuint's, calculation the net present value of the revised deal is about Rs 1,040 crore higher than the previous one.
Revised deal
Net present value: Rs 9,415 crore.
Includes Rs 3,015-crore equity and nearly Rs 6,400-crore debt.
Previous deal
Net present value: Rs 8,360 crore.
Included Rs 3,010-crore cash, Rs 6,440-crore debt and Rs 3,340-crore towards preference shares.
Minus Rs 4,390 crore worth of inter-corporate deposits.
Amit Dixit, assistant vice president-research at Edelweiss Securities, told BloombergQuint that the inter-corporate deposit of Rs 4,380 crore given by JPL to JSPL will now be assumed by Worldone along with the benefits from preference shares of Rs 7,000 crore issued by JPL to JSPL. He said this will have two benefits: JSPL's debt of Rs 4,380 crore is reduced and uncertainty regarding dividend from preference shares is allayed.
Rakesh Arora, managing partner at Go India Advisor, said this is positive for JSPL's shareholders as it improves the net present value of the deal and reduces the corporate governance concerns.
Earlier, proxy advisory firm IiAS, in a May 12 report, had said that JSPL’s rationale to sell the power business was “unclear” and there was a pattern to these transactions.
Brokerage View
Investec Securities
Maintained 'buy' with a target price of Rs 575, a potential upside of about 40% from current level.
JSPL’s revised offer on JPL reflects investor feedback and is a welcome move.
It has a cleaner structure and the enterprise value is higher by Rs 200 crore.
A successful closure would reduce debt, aid expansion and reduce the carbon footprint nearly by half.
Timelines for closure, cost of winding up and legal hurdles need to be watched.
Edelweiss Securities
The new structure allays concerns on cash neutrality and a promotor company (Worldone) as a counterparty.
A positive step and right effort in enhancing governance.
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