Proxy cloud on power plant deal between JSW, JSPL

Reappointment of auditors, Rs 7,500-cr fundraising and hiking of investment limits among resolutions taking a rap; JSW says deal on arm's length basis

Proxy advisory firms have opposed some resolutions coming for shareholder approval at the annual general meeting, on Thursday, of Sajjan Jindal group firm JSW Energy.

Both Stakeholders Empowerment Services (SES) and Institutional Investor Advisory Services (IiAS) have opposed the resolution for reappointment of auditors. While the latter has recommended shareholders vote for all other resolutions, the former has opposed three other proposals — for fund raising, increasing of investment limits and the deal to buy a 1,000 Mw power plant from Jindal Steel and Power (JSPL), the company promoted by younger brother Naveen Jindal.

RELATIVE UNEASE

• JSW proposes to buy JSPL's power plant in Chattisgarh
• Price range given as Rs 4,000 crore to Rs 6,500 crore
• Proxy firm says valuation report not in public domain
• JSW contends that deal at arm's length

In May, JSW Energy had said it would buy all of JSPL’s 1,000 Mw thermal power plant in Chhattisgarh, at an enterprise value of Rs 4,000 crore. Which could be increased to Rs 6,500 crore if JSPL manages to secure 100 per cent fuel supply for the plant and enters into long-term power purchase agreements. The management was quoted in news reports that the deal will only be completed by June 2018, at which point the full payment will be made to JSPL.

The objection on appointment of auditors includes the issue that the company proposes to do so for only a year, not a longer term. Concerns on other resolutions include issues on corporate governance and transparency.

An e-mail seeking comments, sent to the company’s spokesperson on Friday, did not elicit a response.

However, in an e-mail to SES, JSW Energy responded to the criticism on acquisition of the plant from JSPL by saying the deal was on an “arm’s length” basis. SES had questioned the related party transaction on non-availability of the valuation report on the website and the wide transaction range of between Rs 4,000 crore and Rs 6,500 crore. “The gap of Rs 2,500 crore is almost 60 per cent of the base price. Shareholders’ approval is being sought without giving them the metrics on which the increase will be dependent. Such lack of transparency does not give shareholders confidence and is not shareholder-friendly,” SES said in its report. It added the company should have disclosed whether the board's audit committee had cleared the deal.

In the mail dated July 8, JSW Energy said, “The audit committee, as also the board of directors, deliberated upon and reviewed the proposed transaction from an arm’s length perspective, including taking into account the inputs from independent consultants, and then approved the transaction. As discussed already, the independent valuation report is available for inspection.”

The company also sought from SES a list of other companies that had shared valuation reports while doing such a transaction. JSW Energy also wanted to increase the investment limit from Rs 12,311 crore to Rs 21,030 crore. The proxy advisory firm recommended a vote against the proposal, saying, “The limit sought will give freedom to invest almost 2.5 times more than the current investments. Such a blank approval is not in the interest of shareholders, as they have no clue on where the board will invest the money.” It said the company should seek nod for specific investments, not an all-inclusive approval.

On the resolution to raise funds of Rs 7,500 crore through issue of securities, SES argued the existing shareholders had the first right to participate in any capital issue. Adding that the issue could have a dilution effect of about 35 per cent on public shareholding, it also saw other terms such as options to place shares at a five per cent discount in a Qualified Institutional Placement and issuing of warrants as provisions detrimental to minority shareholder interest.