Tale of incomplete disclosures behind Jindals' 49% stake in JPFL Dutch arm

Company says due process followed and informed deal structure to RBI

The promoters of New Delhi-based packaging films player Jindal Poly Films (JPFL) have housed 49 per cent stake in a Netherlands-based subsidiary, used for several acquisitions over the years, in a company privately owned by them. By paying just 41,000 euros (Rs 30 lakh) for their shares in JPF Netherlands, the promoter entities came to own nearly half of the overseas business valued at over Rs 8,200 crore. Over the years, this 49 per cent stake has changed hands and is now with a Dubai–based company.

Business Standard reviewed exchange announcements, valuation reports, and regulatory filings of companies in India, Singapore, and the Netherlands to piece together a tale of incomplete and delayed disclosures that has drawn allegations that the promoters have enriched themselves at the cost of public shareholders. The company, however, has said that due process was followed in the acquisition and requisite approvals, including from the Reserve bank of India (RBI), have been received.

The deal and disclosure

In 2012-13, JPFL, the flagship of the BC Jindal group, acquired ExxonMobil’s films business for $235 million through JPF Netherlands BV.

While the listed entity bore the entire cost of the ExxonMobil acquisition by giving corporate guarantees for loans raised from the State Bank of India (SBI) and Exim Bank, it now turns out that 49 per cent of JPF Netherlands was owned by a Singapore-based company controlled by the promoters. These details were not disclosed to the shareholders either at the time of the announcement of the deal or at the time of taking the shareholders' approvals for bank financing of the deal through postal ballot in 2012-13.

JPF Netherlands is the mothership of JPFL's overseas operations and controls several businesses, including the French business of Rexor. It is also the vehicle that is being used for a $82.3-million acquisition of Apeldoorn Flexible Packaging Holding, announced earlier this week.  

BC Jindal is the brother of OP Jindal, whose sons Sajjan and Naveen have large interests in the steel and power sectors. BC Jindal’s son Shyam Sunder Jindal, grandson Bhavesh, and their family control JPFL directly and through holding companies and trusts. However, none of the promoter family members are presently on the board of directors or part of the management. Professionals such as Chief Executive Rahul Bhatia and Chief Financial Officer Manoj Gupta are running the day-to-day affairs of the company.

A company executive pointed out that the fact that JPFL held only 51 per cent in JPF Netherlands was mentioned in the company’s annual report for 2013-14. The annual report also mentioned Anchor Image & Films Singapore as a related party. However, these disclosures came several months after the deal was concluded and the details were scattered across the report in a manner that not many shareholders could make sense of, argue aggrieved shareholders.

"The transaction is clearly against the interest of the minority shareholders...," said Rajiv Parekh, a JPFL shareholder who has written to the Securities and Exchange Board of India (Sebi) and other investigative agencies seeking a thorough probe. He has alleged the violation of corporate governance norms and other Sebi regulations in his complaint. An email sent to Sebi's spokesperson did not elicit any response.

"With reference to your email dated 17th July, 2017 and 22nd July, 2017, we wish to inform you that the acquisition of BOPP Films business from Exxon Mobil was made after due process have been followed and after obtaining requisite approvals wherever required including of Reserve Bank of India. Company has also informed to Reserve Bank of India about the proposed structure of this acquisition," Sanjeev Kumar, company secretary at Jindal Poly Films, said in an email response.

Multiple layers

In October 2012, JPFL told exchanges that it had "entered into an agreement with ExxonMobil Chemical to purchase ExxonMobil’s Biaxially Oriented Polypropylene (BOPP) global films business".

The release, which quoted the then CEO Hemant Sharma, said that the agreement covered five BOPP production locations in the US and Europe. It also mentioned that approximately 1,500 people worked in the operations. However, nowhere did this release mention that the plan was to buy only 51 per cent of the business.

Kolkata-based Soyuz Trading and Rishi Trading, owned by the Shyam Jindal family, are listed as promoter group firms of JPFL. As of September 2012, Soyuz owned 28.18 per cent, while Rishi owned 11.89 per cent in the listed entity.

Rishi and Soyuz, together, floated a company called Anchor India Image & Films. Three months after the announcement of the agreement with ExxonMobil, in January 2013, Anchor India floated a subsidiary in Singapore called Anchor Image & Films Singapore with an investment of $62,000 (Rs 34 lakh at forex rates of January 2013).

Soon, Anchor Singapore subscribed to 49 per cent shares of JPF Netherlands for 41,000 Euros (Rs 30 lakh), while 51 per cent was owned by Jindal Poly Films.  

JPF Netherlands was, in turn, used to acquire the ExxonMobil BOPP business. In an exchange filing on May 3, 2013, Jindal Poly announced that it had entered into "agreements concerning the acquisition for a consideration of approximately $ 235 million, which is subject to customary price adjustments. The transaction is expected to close by end of July 2013". Even in this announcement, there was no mention of JPF Netherlands and no guidance that only 51 per cent would be owned by the listed entity.

On October 3, 2013, the company announced that the acquisition process had been completed and that change of control had happened on October 1, 2013. Even here, there was no indication of the stake controlled by the listed entity or the promoter interest.

Guarantees and shareholder approval

Funds for the acquisition were raised by JPF Netherlands from the London branch of the SBI, the Exim Bank and Societe Generale, in Paris. These loans were secured by corporate guarantees given by JPFL.  

"The loans with State Bank of India, London branch and Export Import Bank of India are secured by a guarantee of the parent company Jindal Poly Film and requires Jindal Poly films to maintain certain financial ratios and comply with certain financial covenants on a consolidated level," a note to the accounts of JPF Netherlands’ annual report for the years 2014-15 said. Anchor Singapore did not give any such guarantees.

Even the resolution for approval of these guarantees and the explanatory statements therein, which was put up to shareholders through postal ballot in October-November 2013, was silent about promoter interest in the transaction. In August 2016, S.R. Dinodia & Co, the independent valuers hired by the company, valued JPF Netherlands at Rs 8,247.7 crore based on discounted cash flow basis.

Two months after this valuation report, Anchor Singapore announced a buyback of shares held by Anchor India and other group entities such as Jindal Photo and Jindal Films India. Following this, Anchor Singapore was merged with a company called Global Synergy, which is fully owned by Dubai-based Synergy Consultancy and Management Services. JPFL executives did not give further details about the ultimate owners of this Dubai-based entity.