Jain Irrigation to park promoters’ holding in trust

Jain Irrigation to park promoters’ holding in trust
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First Published: Sun, Apr 12 2009. 11 51 PM IST
Updated: Sun, Apr 12 2009. 11 51 PM IST
Mumbai: Entrepreneur Bhavarlal Jain, founder of the world’s second largest microirrigation firm Jain Irrigation Systems Ltd, and his four sons are attempting to preserve and perpetuate within the family an entrepreneurial legacy painstakingly built by the father over four decades.
Jain senior, 72, who has survived four heart attacks and two bypass operations, and the sons have signed agreements that forbid the sale of shares from their core holding in the Rs3,000 crore drip irrigation firm that has a 55% share of the Indian market.
They are now working to create a structure to hold their promoters’ stake in a trust. Shares from the stake can’t be sold by any of the promoters even if one or more were to want a separation from the family.
“We are trying to create a structure that will live for 100-200 years, that will hold at least 26-30% of the promotersstake,” Anil Jain, managing director of Jain Irrigation, said in an interview last week.
“It’s a model that will ensure that the value created in the company will stay in the company and last for at least two-three generations,” Jain said.
What the promoters of Jain Irrigation are considering is essentially a voluntary “lock-in” of their controlling stake—a rare instance of promoters using the concept to perpetuate their enterprise and prevent family splits. A lock-in is a concept regulators put in place to ensure some investors remain tied to firm’s stock for a specified period of time before they sell out. The aim is to ensure that those investors who received shares on a preferential basis will not profit from them at the cost of new investors in a company.
The Jains are not alone. As a generation of entrepreneurs and industry leaders readies to pass the baton, Indian businesses are finding new ways of dealing with the prospect of having to move from single ownership to multiple successors and to lock control within the family.
Take, for example Grandhi Mallikarjuna Rao, the founder of the GMR Group that has interests ranging from airport management to electric power. Rao, 58, made his entire family—wife, sons, daughters-in-law, daughters, and sons-in-law—attend a conclave and vow before the family deity and senior group executives that they would work together in the group’s interest.
Many Indian business families have separated in recent years, the most famous instance being the 2005 split between brothers Mukesh Ambani and Anil Ambani, who carved up the Reliance Group empire founded by their late father Dhirubhai Ambani. More recently, the Bajaj Group split into three entities in an amicable parting of ways after years of public recrimination between branches of the family.
Jain Irrigation’s Anil Jain denies that his family’s move had anything to do with what had been happening in other family-controlled businesses. “It was not due to what’s happening around us. The main issue before us is how do we create the foundation to build an institution,” Jain explained. “No single individual either because of any difference in thought or arrogance will be able to take the firm hostage.”
“All of us brothers and my father and our children will become trustees and nobody will have ability to buy or sell shares of the company,” he added.
Jain Irrigation is growing at a healthy annual clip of 30%, handholding farmers in adopting drip irrigation techniques in a country where farm holdings are fragmented and farmers depend on the monsoon to water their crops. They are also taking advantage of government subsidies. The government provides a 50% subsidy per hectare and drip irrigation has taken off in states such as Maharashtra, Andhra Pradesh, Tamil Nadu, Gujarat, Rajasthan and Madhya Pradesh.
International Finance Corporation, a World Bank arm, recently purchased a 3% stake in the firm for $15 million.
Marico Ltd chairman and managing director Harsh Mariwala spoke in an interview with Mint about his own plans to perpetuate the firm he built, brand by brand, into a Rs2,000 crore home and consumer care goods maker in less than 20 years (see Page 8).
For role models, Mariwala is looking to multinational makers of consumer products such as Unilever Plc. and Procter and Gamble & Co. “I can’t explain it, but I have a very strong desire to make my company live much beyond my lifetime,” Mariwala said. “It’s like Procter and Gamble were started by one Mr Procter and Mr Gamble and now they are not there on the scene. (In) the same way, I want to create a board-managed company on a sustainable basis.”
Mariwala’s daughter, who has just returned from the US after completing a business degree, is currently doing duty in one of the divisions at Marico. “(I) have to decide to what extent the lock is required,” said Mariwala, referring to a possible lock-in of shares to retain family control. “While the family will be in control, Marico will become a board-managed company.”
“Growth has to be sustainable and profitable, organizations have to move from providing returns (not only) to shareholders, but to all stakeholders,” Mariwala says.
The Jains, especially the father, live an austere life and discourage people from chewing tobacco or smoking on their sprawling 1,000-acre campus in Jalgaon, Maharashtra, where they live in a family mansion. No coffee or tea is served because they are considered addictive.
Jayant Thakur, a chartered accountant and an expert in securities law, who is helping the Jain family create a trust model, admits that devising a legal framework for the structure is “very difficult”.
“It is an idealistic and Gandhian concept,” Thakur says, adding that the company’s founder is determined to go ahead.
Can such lock-ins of family stock kill the entrepreneurial spirit which has served the Jain family so well so far, by depriving the young scions of an incentive to innovate and take risks in business?
Anil Jain says the family has thought about it. In addition to the stakes that will go into the trust, a small holding of 10% in the firm will be used to further the interests of those who want to venture into new businesses and test new ideas. “But even the new businesses will remain within the family,” he says.
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First Published: Sun, Apr 12 2009. 11 51 PM IST