Proxy advisory firms have opposed some resolutions, which are coming up for shareholder approval at the annual general meeting of Sajjan Jindal group firm JSW Energy on Thursday. 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 to vote for all other resolutions, the former has opposed three other proposals for fund raising, increasing investment limits and the deal to buy a 1,000 Mw power plant from Jindal Steel and Power (JSPL), the company promoted by Jindal’s younger brother Naveen Jindal.
In May, JSW Energy had said it will buy 100 per cent 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 saying in news reports then that the deal will only be completed by June 2018, at which point the full payment will be made to JSPL.
The objections on appointment of auditors include the issue that the company proposes to appoint it for just one year instead of a longer term. Concerns on other resolutions include corporate governance and transparency issues.
An email seeking comments sent to the company’s spokesperson on Friday did not elicit any response.
But in an e-mail to SES, JSW Energy responded to the criticism on acquisition of plant from JSPL saying that the deal was on “arm’s length” basis. SES had questioned the related party transaction on non-availability of valuation report on the website and the wide transaction range of between Rs 4,000 crore to Rs 6,500 crore.”The gap of Rs 2,500 crore is almost 60 per cent of base price. Shareholders’ approval is being sought without giving them the metrics on which 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 that the company should have disclosed whether the 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 have shared valuation reports while doing such M&A transaction.
JSW Energy also wanted to increase investment limit from Rs 12,311 crore to Rs 21,030 crore. The proxy 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 approval for specific investments instead of an all-inclusive Carte Blanche approval.
On the resolution to raise funds of Rs 7,500 crore through issue of securities, SES argued that 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, the proxy also saw other terms such as options to place shares at 5 per cent discount in a Qualified Institutional Placement and issue warrants as provisions detrimental to minority shareholder interests.
