Update on Consolidated Finvest & Holdings

Update on Consolidated Finvest & Holdings

The BC Jindal Group top brass appears to have been doing a lot of brainstorming and spending a lot of time at the drawing board over the last few months.

It all started with the proposed merger of associate company Rishi Trading with the group holding company Consolidated Finvest. At that stage, I had mentioned that this was probably the first step of a larger restructuring plan.

Clearly, power has been identified as the group's future thrust area and to my mind will be a much better value generator than traditional businesses such as photo films and poly films.
Not surprisingly, the power business has been the centre of attention for the group's resources as well. First this was to be part of Jindal Photo, which has since also been awarded coal mines and the initial proposed capacity was 440MW.

A glance at the financials of Jindal Photo would have revealed that even a 440MW power plant would require funding much beyond the dilution and leveraging potential of Jindal Photo.
It was pretty clear that the group's entire net worth would need to be brought into the picture for funding the project.
This of course was until Reliance Power happened. Reliance Power's successful IPO (even if one discounts the debacle post-listing) has made a large number of business groups believe that money can be raised at astronomic valuations entirely banking on 'power'point presentations as Reliance 'Power' did.

Close on the heels of Reliance, we have seen similar plans of Sterlite and JSW groups. Now here comes the BC Jindal Group, which has gone ahead and revised its targets by 10 times taking its proposed power capacity to 4500MW in
4 years at an investment of Rs.20,000 crore.

The euphoric sentiment of promoters post the success of the Reliance Power and Future Capital (another futuristic spreadsheet story) IPOs has somewhat faded off as expected but their grand plans are still waiting in the wings.

For details on the BC Jindal Group's power plans, refer link below:
http://www.business -standard. com/common/ news_article. php?leftnm= 10&bKeyFlag=BO&autono=313957

Last month, Consolidated Finvest announced merger of Jindal India Powertech (which I believe is the holding company for the power business) with itself and simultaneous demerger of the investment business into Jindal India Finvest & Holdings.
This would have definitely have unlocked value for stakeholders but the overall plan as I see it would have been to use the listed entity to thereafter raise further money for the power business. (The merger ratio may have taken the promoter holding to over 75% odd and thereafter they would have diluted some of it).

Refer link below:
http://bseindia. com/qresann/ news.asp? newsid={1390BC9F -BD9C-41E0- A6BF-74DB0AFA5B5 1}

However, this plan was later called off and I understand that the plan now is to use Jindal Photo as the entity for vesting the power business only.
Refer links below:
http://bseindia. com/qresann/ news.asp? newsid={63D9BA1E -C09C-4F84- AFE2-C172BE684F3 7}
http://bseindia. com/qresann/ news.asp? newsid={E9B7022E -757C-4840- B2A6-7FEDD81F6A1 B}

Either ways, some value is going to be captured in Consolidated Finvest under both scenarios as it directly and indirectly substantially owns Jindal Photo.

The latest development is Consolidated Finvest's plan to voluntary delist its equity shares.
http://bseindia. com/qresann/ news.asp? newsid={37DE2596 -0BCF-41F8- 83C5-12EF4A10690 8}

The way I look at it, this clearly signals the intention of the promoters to unlock significant value in future and hence their desire to maximize their share of it.
The recent success tasted by promoters of another investment holding company SRF Polymers (which holds SRF) in hiking their stake through an open offer amidst turbulent market conditions may also have played its role in triggering the move.

The markets have not reacted to the development, probably because of the recent indecision and / or unpredictability demonstrated by the group promoters.

Nevertheless, at this stage, its safe to assume that the delisting if and when it happens - through a reverse book building process could happen at 50-100% premium over the current market price, especially since ~9% of the stock (~27% of the non-promoter holding) is concentrated among 2 entities, both of which are long term investors.