Gautam Adani’s board approves demerger of businesses

By: | Updated: January 31, 2015 12:47 PM

Shareholders to get stocks of power, ports, to-be-listed transmission arm

Adani Enterprises (AEL), the Gautam Adani-led conglomerate with interests spanning power, coal, ports and logistics, is embarking upon a complex restructuring of its organisational structure (as a holding company) and those of its subsidiaries.

The restructuring is being done to give AEL’s shareholders direct ownership of operational businesses; improve the worth of their holdings by eliminating the so-called holding company discount; facilitate the listing of AEL’s power transmission business; and improve the liquidity of already listed firms like Adani Power (APL) and Adani Ports and SEZ (APSEZ) by increasing their free float.

“The scheme of arrangement is a decisive step towards unlocking the potential value of Adani Group companies. It will drive the next level of value creation, competency, decision making and would be able to accelerate business growth,” Adani Group chairman Gautam Adani said in a statement on Friday.

“The shareholders would continue to participate in the growth and progress of Adani with direct shareholding in the respective listed companies.

In addition, they would also get shares in one of the largest private sector transmission companies,” Ameet Desai, Adani Group’s chief financial officer, said. It will also allow new shareholders to participate individually in the growth areas of resources, energy and logistics, he added.

Under the existing structure, AEL is the main holding company for the group’s businesses such as APL and APSEZ (which are listed) and unlisted businesses like coal trading and mining, and power transmission. Apart from equity, AEL also has some operational interest in these verticals. For instance, businesses, activities, operations, assets and liabilities pertaining to the Belekeri port, a 40 MW solar power project in Bitta, Gujarat, and the Mundra-Zedra transmission line.

The scheme of arrangement, approved by the companies concerned on Friday, entails AEL transferring its aforementioned assets to subsidiary companies. Consequently, the interest in the Belekeri port will be transferred to APSEZ, the Bitta power plant to APL and the transmission line to an unlisted subsidiary called Adani Transmissions (ATL), along with AEL’s investments in these companies.

Upon completion of this exercise, the equity shares AEL holds in APL and APSEZ will stand cancelled. In lieu of this, shareholders of AEL will get new shares in APL and APSEZ in the ratio of 14,123 shares in APSEZ and 18,596 shares in APL for every 10,000 held in AEL. The power transmission business, which comprises over 5,000 km of transmission lines, will be demerged from AEL and transferred to ATL, which will then be listed on the bourses. AEL shareholders will receive one share in ATL for each share they hold in the erstwhile umbrella company.

The transactions contemplated under the scheme are expected to be completed by December 31. BSR and Associates, JM Financial, Axis Capital, Dhruva Advisors, GK Choksey and Co, and Singhi and Co are the various financial and legal advisors on the scheme of arrangement.

“The new structure will yield significantly positive benefits for the shareholders of Adani Enterprises, and what the conglomerate is doing may lead to a new trend,” SP Tulsian, a Mumbai-based independent stockmarket analyst said. “Some of the profitable ventures of the Adani Group that were controlled by the holding company weren’t enjoying the kind of valuation that they would have otherwise and the promoters have decided to correct this.”

There will be no impact of the restructuring on the standalone shareholders of APL and APSEZ, according to Tulsian, since there will be no expansion in the existing equity base of these two firms with AEL’s current holding in them getting extinguished.

In India, most holding companies trade at a discount to the combined valuation of the businesses in which they hold a stake. This is because the promoters of these firms can retrieve a disproportionate share of profits from their subsidiaries through schemes of mergers or demergers.

Aiming high
* The restructuring is being done to eliminate holding company discount, facilitate the listing of the transmission business and improve the liquidity of listed firms like Adani Power and Adani Ports
* The interest in the Belekeri port will be transferred to APSEZ and the Bitta plant to APL
* The power transmission business will be demerged from AEL and transferred to ATL, which will then be listed on the bourses. AEL shareholders will receive one share in ATL for each share they hold in the erstwhile umbrella company
* Analysts feel the new structure will yield significantly positive benefits for shareholders. They believe some of the profitable ventures of the group, which were controlled by the holding company, weren’t enjoying the kind of valuation they would have otherwise

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