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 yesterday 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 up to 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.