Kolkata: Shareholders owning a 57% stake in the state-owned power distribution firm DPSC Ltd are up in arms against a decision by Descon Ltd, a software firm promoted by DPSC, to mortgage a 32.31% stake in its promoter with JSW Energy Ltd because they say this will hurt the competitive bidding process when their own stake in the power distributor goes up for sale shortly.
Last year, the Union government decided to sell Andrew Yule and Co. Ltd’s 15% stake in DPSC, along with the 42% owned by Life Insurance Corp. of India Ltd and General Insurance Corp. Ltd.
The Andrew Yule management sees the move as putting JSW Energy ahead in the race for this stake, and the company has challenged the mortgage of shares in court. “It’s difficult to find another buyer through competitive bidding if JSW controls a large chunk of shares in the company (DPSC),” said an Andrew Yule executive, who did not wish to be named. Several power companies and the West Bengal government had evinced interest in picking up the 57% stake in DPSC, he added.
To be sure, the transaction only involves a mortgage of shares, not an outright sale, but should Descon not repay the loan of Rs12 crore, the shares will be transferred to JSW Energy, a power generation firm that has already announced its interest in power distribution. A company with a 32.31% stake can demand seats on the board and block all special resolutions or important decisions taken by the firm.
The government’s decision was prompted by a desire to revive Andrew Yule. It also decided to sell Andrew Yule’s 26% stake in another firm, Tidewater Oil Co. Ltd. In 2006-07 alone, the 144-year- old Andrew Yule posted a net loss of around Rs90 crore.
Andrew Yule had appointed Deloitte and Touche Consulting India Pvt. Ltd to advise it on the proposed stake sale in DPSC. But even as bid documents were being prepared and potential buyers were being tapped, Descon went ahead with its transaction with JSW Energy.
“We had to raise Rs12 crore to repay a high-cost debt,” said S. Radhakrishnan, managing director of Descon, who is also the managing director of DPSC. The loan from JSW Energy has to be repaid by October, according to him.
A spokesperson for JSW Energy said her firm wouldn’t comment on the deal. Mint couldn’t immediately confirm whether JSW Energy had expressed any interest in DPSC.
Descon’s decision also seems to have been driven by a desire to protect its own interests. A director of the company said Descon “should have been given the first right of refusal” in respect of Andrew Yule’s 15% stake, and that it has challenged the company’s decision to sell this stake.
“We had acquired our stake in DPSC through a rights issue. In 1995, Andrew Yule couldn’t subscribe to the company’s rights issue for want of money, and asked us to subscribe to the issue so that control remained within the group. Andrew Yule’s stake sale will make it impossible for us to find a buyer for our shares in DPSC,” the Descon director said on condition of anonymity.
It is not clear what JSW Energy gains in this scenario.
DPSC, which supplies power to industrial users in a 618 sq.km area in the Asansol-Raniganj coal belt, also owns large tracts of land, estimated at 160 acres. It operates two small power plants that generate 42MW, and has been planning to set up a 600MW coal-based power plant, for which it has already secured coal linkage, according to Radhakrishnan. DPSC posted a net profit of Rs5.25 crore in the year ended March 2007.