JSW Holdings, the listed entity which owns shares in group companies led by Sajjan Jindal, lent Rs 75 crore last year to a private company owned by his wife, Sangita Jindal, and proposes to lend another Rs 25 crore this financial year.
JSW Techno Projects Management, 99 per cent owned by Sangita Jindal, has made losses in the past three years and has a negative net worth.
JSW Holdings is proposing to pledge the shares of JSW Steel it owns to fund these and other related party loans to two other family owned entities, Unity Advisory Services and SJD Advisory Services. Both controlled by Sajjan Jindal Family Trust, whose beneficiaries are Sajjan Jindal and his kin.
JSW Holdings has put these transactions for shareholder approval at the annual general meeting scheduled this Saturday. And, Stakeholders’ Empowerment Services (SES), the corporate governance advisory firm, has asked the shareholders to vote against these transactions, citing lack of transparency and other corporate governance concerns. Several mutual funds and some foreign portfolio investors hold shares in the company.
Three years earlier, JSW Steel had proposed to pay a brand usage fee of around Rs 125 crore to JSW Investments, also owned by Sangita Jindal, claiming the latter owned the JSW brand.
A JSW spokesperson did not offer comments on an e-mail query sent on Monday and subsequent follow-ups through phone.
“The company being a core investment company, the transactions with respect to granting of loans to group companies are in the ordinary course. However, the company is providing loans in the guise of group companies to a company owned by the wife of the promoter. SES is of the view that the company is transferring benefit to the promoters of the company at the cost of non-controlling shareholders. Further, the company has not disclosed the purpose/objective of utilisation of loans by JSW Techno Projects Management,” says SES in its report.
The financial position of the borrowing companies has not been disclosed. From the last available data, one of the borrowing companies has negative net worth and this fact is not disclosed to shareholders. SES says it finds total lack of transparency and the transaction to be abusive in nature and against the interest of minority shareholders.
The company is also seeking fresh approval to pledge up to 60 million shares (existing pledge is for 109.57 million) of JSW Steel, to secure financial facilities to be availed of by the three family companies and their subsidiaries, and ratification of a pledge of another 65 mn shares for loans already availed.
The pledge will result in a cumulative liability of Rs 3,400 crore, as the market price of JSW Steel is around Rs 200. These pledges may be invoked in case of defaults by the loss-making family firms. “SES believes that as the company is pledging these shares of JSW Steel as security for loans/financial facilities availed by promoter group companies, the same may adversely affect the rights of the non-controlling shareholders in case the pledge is invoked by the lenders in case of default.”
The company has also not given any rationale for pledging a substantial amount of its investments. The SES report says the board of directors would have evaluated all the relevant aspects with respect to the pledge and prudence of extending such facilities. If so, there is no reason why these should not be shared with the shareholders, to enable an informed decision. “If not, the board must answer as to on what basis they take such decisions,” SES contends.
|Financial position of JSW Techno Projects (in Rs crore)|
|Half Year ending September 2017||76.48||93.3|
|Accumulated loss as on 30th September, 2015 was Rs 356 Crore|
|Source: SES report dated June 20|