Mumbai: The four Jindal brothers—Prithviraj, Sajjan, Naveen and Ratan—who control the $12 billion (Rs57,600 crore) industrial group they inherited from their father O.P. Jindal in 2005, are in the process of whittling down the number of holding and investment firms through which they control the group’s operating companies. This restructuring could allow them to raise more money from banks, fund new businesses and also create fewer succession tensions later.
A web of 30 investment firms will be untangled to create four new holding companies, said a top official of Sajjan Jindal’s JSW Steel Ltd.
In the family: Sajjan Jindal’s JSW Steel is the largest firm in the group by sales, with a market capitalization of Rs15,108 crore as on Friday. Indranil Bhoumik/Mint
“All the promoters’ holding in various companies will be consolidated into four companies,” said M.V.S. Seshagiri Rao, joint managing director of JSW Steel and chief executive of the Sajjan Jindal group.
A holding company does not usually produce any goods and services itself, but owns shares in companies that do. Indian promoter groups have traditionally controlled operating companies through such investment firms.
The four holding companies that will be created after the restructuring will continue to have cross holdings by the brothers to abide by the will written by O.P. Jindal 20 days before he died in a helicopter crash in Haryana in 2005.
The promoters’ stake in each new holding company will be split five equal ways among the brothers and their mother Savitri Devi, the chairperson of the O.P. Jindal group. Each brother will control one holding company and will eventually inherit Savitri Devi’s stake, making him the largest individual shareholder in that particular holding company with 40% ownership.
“We will raise debt in the holding companies and use it as promoters’ equity to fund our new cement plants and expand steel capacity,” said Rao, who has been with JSW for more than a decade.
According to Rao, JSW promoter Sajjan Jindal needs to invest Rs450 crore to build a 2.5 million tonne (mt) cement plant in Andhra Pradesh and a similar one in Vijayanagar, near the group’s 8 mt steel plant, and Rs1,200 crore for a million tonne alumina plant in Andhra Pradesh.
“We will repay these loans from the dividend inflows (from the operating companies),” he said. The promoters received Rs117 crore as dividend from JSW Steel after the company reported a Rs458.5 crore net profit for the fiscal year ended March. Lenders led by IDBI Bank Ltd have already sanctioned Rs1,500 crore for the cement plants, while a consortium of banks led by ICICI Bank Ltd, India’s largest private sector bank, has agreed to lend Rs3,000 crore for the alumina plant.
Sajjan’s younger brother Naveen Jindal’s plans are much bigger: $22.6 billion to build 30.5 mt steel plants and generate 9,200MW power across the country.
JSW Energy Ltd, also a Sajjan Jindal firm, plans to build a 1,080MW coal-based power plant in Barmer in Rajasthan and a 1,200MW plant in Ratnagiri over the next few years, with a total investment of Rs11,500 crore. JSW Energy will raise Rs3,000 crore by selling a part of its promoters’ stake, for which the company has already filed a public issue prospectus with the Securities and Exchange Board of India.
The group, founded by late parliamentarian O.P. Jindal, has four main companies managed by sons Prithviraj (Jindal Saw Ltd), Sajjan (JSW Steel), Naveen (Jindal Steel and Power Ltd) and Ratan (Jindal Stainless Ltd), with cross ownership through the 30 holding companies. Naveen Jindal, also a parliamentarian, sits on the board of younger brother Ratan Jindal’s firm, and vice versa.
Holding companies, by law, are optional and were created for a number of reasons, said Anil Harish, legal counsel and managing partner at DM Harish and Co., a law firm that advises clients on corporate law and tax. Holding companies, he said, allowed family members to have better control, easier succession, and to save on wealth and estate tax.
Until 1993, individuals who owned shares had to pay 8% wealth tax on the value of the stock on the last day of a fiscal year. Inheritors of wealth also had to pay 65% estate duty till 16 March 1985 on the value of promoters’ assets. The promoters themselves were exempt from this tax because they held shares through a holding company rather than in their individual capacity.
The holding company concept is relevant in the Indian context, said C.G. Srividya, partner at Grant Thornton India, a global consulting firm that advises companies on mergers and acquisitions, and tax. These companies can raise debt more easily, as international investors prefer to invest in these companies in their own jurisdiction, she added, referring to the fact that some holding companies such as Anil Agarwal’s Vedanta Resources Plc are incorporated abroad.
Sajjan Jindal, the second son, has two listed companies—JSW Steel, which owns the 8 mt Jindal Vijayanagar Steel Ltd on the outskirts of Bangalore and cold rolling and galvanized mills in Tarapur and Vasind in Maharashtra, and Jindal South West Holdings Ltd, an investment company with interests in other companies of the O.P. Jindal group. Following a 2005 merger between Jindal Iron and Steel Co. Ltd (Jisco) and Jindal Vijayanagar Steel, Jisco’s investments were hived off into a separate company, JSW Steel.
A single holding company would allow the family members to pool their shares to have a unified base from which to control the operating company, Harish said.
JSW, the largest company of the group by sales, had a market capitalization of Rs15,108 crore at the end of Friday trading on the Bombay Stock Exchange, while the market value of Jindal Steel and Power was Rs55,590 crore. Jindal Saw was valued at Rs3,738 crore and Jindal Stainless at Rs1,369 crore.