Minority shareholders block JSW Energy's related party transaction proposal

Mumbai: A Rs 9,000-crore related party transaction proposed by JSW Energy was blocked by minority shareholders at the company’s annual general meeting (AGM) this month because the deal reportedly benefitted JSW Group companies and the promoters, but not the minority owners.

The company wanted to procure coal from JSW International Trade Corp, a Singapore-based trading company that routes coal imports for JSW Group companies from Indonesia, South Africa, Australia and Mozambique. However, this proposal tripped as 70% of the minority investors, led by institutions, voted against it.

People privy to the development said that proxy advisory firms raised red flags over the structuring of the deal, prompting institutional investors to vote against the resolution.

A note issued by proxy advisory firm Institutional Investor Advisory Services (IIAS) said JSW International Corp is owned by Sangita Jindal and Tarini Jindal, wife and daughter, respectively, of promoter Sajjan Jindal.

“Given the size of these transactions, the company should have structured the transactions through a direct subsidiary,” a note from IIAS read.

Related party transactions are deals between two companies that belong to the same group or if the promoter group of one company has significant interest in the other. According to Sebi rules, any related party transaction needs to be approved by minority shareholders. The promoter group is not allowed to vote in such resolutions.

In the past three years, transactions between JSW Energy and JSW International amounted to over Rs 6,500 crore, data from annual reports showed.

JSW Energy declined to comment.

In the defeated proposal, the company had sought shareholders’ approval for procuring coal worth up to Rs 9,000 crore from the Singapore entity over a period of 36 months starting April this year.

About 76% of institutional shareholders voted against the proposal even as almost all the non-institutional public shareholders voted in favour of it.

Promoters of JSW Energy hold 74.8% stake in the company while foreign institutions and mutual funds own 6.7% and 4.5%, respectively. The company has a market capitalisation of Rs 9,300 crore, BSE data showed.

People privy to the development said shareholders want such deals to be awarded to fully-owned subsidiaries of JSW Energy so that even minority shareholders can benefit. In the current scheme, only the promoter group stood to benefit, they said.

“The way the Tatas have structured this is that Tata Steel and various affiliates own the Singapore entity and the purchase is made through that entity. The same can be accomplished here if the entity is owned by JSW Steel and JSW Energy and other companies,” said Amit Tandon, managing director of IIAS.