Piramal promoters transfer stake to save dividend tax

Piramal promoters transfer stake to save dividend tax

Mumbai: Promoters of drugmaker Piramal Healthcare Ltd, the Mumbai-based Piramal family and its associate firms, have restructured their ownership in the company ahead of what is expected to be a large dividend payout.

The company informed the stock exchanges of three large share transfers by promoter groups, which will lead to a complete exit in it by majority owner Piramal Holdings Ltd as well as by two other entities.

Piramal Holdings, which owned about 38% equity in Piramal Healthcare, last week transferred 40 million shares, or a 19.14% stake in the drugmaker, to Paramount Pharma Pvt. Ltd, and 38 million shares, or 18.32%, to BMK Laboratories Pvt. Ltd.

On Monday, group companies Nandini Piramal Investments Pvt. Ltd, Savoy Finance and Investment Pvt. Ltd and Swastik Safe Deposits and Investments Pvt. Ltd together transferred 15.2 million shares, or 7.28% of Piramal Healthcare, to Adelwise Investments Pvt. Ltd.

Promoter groups held about 51% equity in Piramal Healthcare. All the private entities to which the shares have been transferred are registered under the Companies Act and will be converted into limited liability partnerships, or Llps, which are exempt from a key portion of the dividend distribution tax, a senior executive at Piramal Healthcare said, declining to be named.

Indian law allows a firm to convert into an Llp if there is no security interest in its assets.

The restructuring is primarily aimed at saving dividend distribution tax for the promoters, this executive said, adding that Piramal Holdings could subsequently invest again in Piramal Healthcare by acquiring shares from the open market.

Piramal Healthcare is expected to announce a large dividend after it sells two key businesses—domestic formulations and diagnostics services—for a combined 17,600 crore. After announcing the two deals with US drugmaker Abbott Laboratories Inc. and Super Religare Laboratories Ltd, respectively, Piramal Healthcare said it would reward shareholders with a large dividend. Piramal’s board is yet to announce the dividend.

Under current laws, dividend distribution tax, including legal charges, works out to about 17% of the dividend declared. The tax is initially paid by issuing company but receivers registered under the Companies Act are liable to pay an equal rate of tax. LLPs are exempt from this tax.

“These companies to which the shares are being transferred are going to become LLPs," confirmed Ajay Piramal, chairman, Piramal Healthcare, but he declined to share details on the quantum of tax savings expected.

“The divestment deals are yet to be closed and one has to wait to see how the company is going to reward its shareholders," Piramal said.

“The promoter wanted to avoid a situation where they will end up paying dividend tax twice. By transferring the promoters’ shares into LLPs, they completely save that second point of tax through the exemption permitted to such firms," said Girish Vanvari, executive director (mergers and acquisition tax) at KPMG India Pvt. Ltd.