Jindal Steel and Power (JSPL) will acquire a majority stake of 53.63 per cent in Gujarat NRE Coke’s loss-making Australian subsidiary through a complex deal, which involves issue of convertible notes, placement of shares and option to acquire shares at a later stage.
The deal, announced last month, was cleared on Wednesday by the shareholders of Gujarat NRE Coking Coal Ltd — the Australian subsidiary of Kolkata-based Gujarat NRE Coke — in a general body meeting held in New South Wales.
Prior to the transaction, JSPL was the second largest shareholder in Gujarat NRE Coking Coal, after its promoters, with 31.49 per cent stake. The Naveen Jindal-led company had launched a failed bid during February-March this year to acquire controlling stake in Gujarat NRE Coking Coal through an open offer.
“This is to advise that all seven resolutions proposed in the general meeting of the company held on October 16, 2013, have been unanimously resolved by show of hands by the shareholders who attended the meeting,” Gujarat NRE Coking Coal’s Company Secretary Sanjay Sharma said in a filing to the Australian Securities Exchange (ASX).
All 7 resolutions were related to the structure of the deal, which includes issue of AUD 45 million convertible notes to Jindal Steel’s subsidiary Jindal Steel and Power (Mauritius) Ltd.
It also involves placement of upto 328.5 million shares at AUD 0.20 per share to Jindal together with a 5-year option to acquire equal number of shares.
If JSPL (Mauritius) cannot subscribe 328.5 million shares in Gujarat NRE Coking Coal and convert options into equity shares, it can acquire 225 million shares upon conversion of AUD 45 million convertible notes, together with the option of acquiring similar number of shares (225 million).
JSPL (Mauritius) has already given an advance loan of over AUD 16.61 million to Gujarat NRE Coking Coal, which had reported a loss (after tax) of AUD 76.60 million, to meet the working capital deficit and repay some of the debt. The Jindal group firm has also appointed a Director in Gujarat NRE’s Board.
Interestingly, an independent advisor, appointed by the management of Gujarat NRE Coking Coal to evaluate Jindal’s offer, had said that placement of shares and overall transaction with JSPL (Mauritius) is “not fair but reasonable to the shareholders“.
Gujarat NRE Coking Coal’s management, in its notice to the shareholders, had said that “upon issue and conversion of the convertible note or the issue of the shares and the exercise of options, pursuant to the placement, the Jindal group (JSPL) will increase its voting power in the company to 53.63 per cent.”
Moreover, the increased voting power of JSPL would put them “in a position to potentially control the operations of the company when taking into consideration its potential voting power”, the management had said.
Prior to the deal, the public float of Gujarat NRE Coking Coal was less than 5 per cent on the ASX as its promoters had 64.1 per cent stake, while JSPL had 31.49 per cent shares.
The rising debt burden and a working capital deficit had forced the management and promoters of Gujarat NRE Coking Coal to approach JSPL, whose bid it had rejected once. In 2012-13, Gujarat NRE Coking Coal had reported a loss (after tax) of AUD 76.60 million.
The new deal is expected to bail out Gujarat NRE Coking Coal through equity infusion, loan and liquid cash.
Australian media had said the company has not been able to pay its workers on time.
In its notice to the shareholders seeking their approval, Gujarat NRE Coking Coal had listed out various options to utilise the proceeds from the JSPL deal, including repaying AUD 31 million convertible notes and payment of AUD 18.48 million to its creditors.
The deal also involves two long term off-take agreements by JSPL for securing coking coal from Gujarat NRE Coking Coal’s two mines which are estimated to have reserves of 125 million tonnes (MT) and resources of 651 MT.
The company has plans to increase its production to 5 million tonnes per annum in the near future.
For JSPL, the deal is a lucrative one as it ensures coking coal supplies to its steel mills in India and will provide raw material security to some extent.
Most of the Indian steel firms import coking coal, an important raw material in making steel, to meet their requirements.