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Wednesday, July 09, 2014

Jayant Agro: Postal Ballot for 700cr debt or stake/asset sale

Jayant Agro held a Board Meeting on July 5,2014. The board of directors took the following decision..

1. To conduct Postal Ballot, pursuant to Section 110 of the Companies Act, 2013 to obtain approval of shareholders, by passing a Special Resolution for:

    a) Borrowing of money up to Rs. 700 Crore under Section 180 (1) (c) of the Companies Act, 2013 where the money to be borrowed together with the money already borrowed by the company will exceed aggregate of its paid-up share capital and free reserves, apart from temporary loans obtained from the Company’s bankers;
    b) Creating mortgages, charges, hypothecation etc. on the Company’s assets, undertaking properties, under Section 180 (1) (a) to secure the borrowings of the Company.
    c) Giving of loan to anybody corporate or providing guarantee or security to any body corporate or acquiring by way of subscription, purchase of otherwise securities of any body corporate in excess of the limits specified under Section 186 (3) of the Companies Act, 2013 up to Rs. 700 Crore.

2. Appointment of M/s. V. V. Chakradeo & Co., Practicing Company Secretaries, as scrutinizer for conducting the Postal Ballot voting process, pursuant to Section 110 of the Companies Act, 2013 and rule 22 of the Companies (Management and Administration) Rules, 2014.

looking at the Board Meeting details it looks like Jayant Agro is going to borrow upto 700cr and the Postal Ballot Special resolution is for these 700cr.. and other related activities..

but then digging a bit deeper and looking at the Companies Act, 2013 shows something different..

Consider point b of the Postal Ballot..
b) Creating mortgages, charges, hypothecation etc. on the company assets, undertaking properties, under section 180(1)(a) to secure the borrowings of the Company

If you read Section 180(1)(a) of the Company Act 2013 it states..
180. (1) The Board of Directors of a company shall exercise the following powers only with the consent of the company by a special resolution, namely:—
(a) to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking,of the whole or substantially the whole of any of such undertakings. Explanation.—For the purposes of this clause,—
(i) “undertaking” shall mean an undertaking in which the investment of the company exceeds twenty per cent. of its net worth as per the audited balance sheet of the preceding financial year or an undertaking which generates twenty per cent. of the total income of the company during the previous financial year;
(ii) the expression “substantially the whole of the undertaking” in any financial year shall mean twenty percent. or more of the value of the undertaking as per the audited balance sheet of the preceding financial year;
You can compare the Postal Ballot statement for Section 180(1)(a) in blue  and one can read the company Act 2013 Section 180(1)(a) in red

Clearly Section 180(1)(a) talks about special resolution for sale of substantial assets (exceeds 20% of company networth or generates 20% of its income)

For the year ending March 2013:
Jayant Agro Standalone total Income: 1215Cr
Consolidated Total Income: 1640Cr
Thus Ihsedu Agro chem Total Income: 425Cr
20% of 1215 = 243Cr
20% of 1640 = 328Cr
So in both terms Ihsedu Agro Chem's Income exceed 20% of Jayant Agro's Income
For the year ending March 2013
Jayant Agro Stand alone Networth: 143.16Cr
Jayant Agro Consolidated Networth: 173.65Cr
thus Ihsedu Agro Chem's Networth: 30.49Cr

20% of Jayant Agro Standalone Networth= 28.63Cr
20% of Jayant Agro Consolidated Networth= 34.73Cr
Ihsedu Agro Chem networth exceeds standalone networth of Jayant Agro..
- Ihsedu Agro Chem is a substantial subsidiary with Income more than 20% of total Income for last year ie. 2013.
- Ihsedu Agro Chem is a substantail subsidiary with networth more than 20% of standalone networth of Jayant Agro.
- Ihsedu Agro Chem networth is less than 20% of consolidated Networth of Jayant Agro.
Conclusion: looks like the postal ballot is after all not for raising loans upto 700Cr(upto.. means loan from 1cr to 700Cr  ).. its more so to get approval to sell a substantial asset... most likely its Ihsedu Agro Chem where Arkema would prefer to hold majority stake.. ( to protect its number one position in castor derivative business worldwide)
700cr could be a hypothetical number .. it could also be the price Arkema pays for majority stake in Ihsedu Agro chem.

Another point worth considering is that promoters might sell stake in Jayant agro itself for 700Cr by selling stake in Jayant Finvest which holds more than 50% in Jayant agro.. but then.. do they need a special resolution to sell stake in a company that is pvt?.. Naw.. so most likely its substantial stake sale by Jayant in Ihsedu agro chem.. and its going to be substantial.. amount somewhere around 700Cr 

So here it is much before the real announcement is made .. information is available that stake sale will happen giving us a chance to enter in before the stock starts appreciating..Jayant Agro: CMP: 121, MCap: 181.50cr
Multibagger if it all turns out to be true.. still its cheap even at cmp for jayant agro as a company.. so heads I win tails I donot loose much!!

=Happy Investing

PN: There is no guarantee ..this is my interpretation based on publicly available information.. Pls do your own deep dive before investing.

Jayant Agro Postal Ballot

Company act 2013 Section 180(1)(a)

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