BUSINESS RE-STRUCTURING… - CA HARESH SHAH
INTERNAL RE-STRUCTURING Means: Examine the present structure of the group businesses v Legal- Company, Wo. S, LLP v Financial: - leveraging, flexibility of financing, expansion, Promotor group shareholding and Family Succession v Tax optimization including transfer pricing regulations 2
INTERNAL RE-STRUCTURING v Future plan: - IPO, JV, alliance and exit v Commercial: - Synergies, focused management , risk and return profile, cost optimization and unlocking value v Return to shareholders: -Dividend and Buy Back 3
OPTIONS AVAILABLE… Merger Itemised Sale Re. Structuring Demerger Slump Sale Apart from above, there are various other options available in restructuring. 4
Case Study: - Godrej Group 5
ABOUT GODREJ GROUP… Recently, Godrej Group consolidated Godrej Industries Limited’s (GIL) interest in Godrej Vikhroli Properties LLP (GVP LLP) (a joint venture entity of Godrej Properties Limited and Godrej Industries Limited) with the Godrej Properties Limited (GPL). GIL GPL India's leading manufacturer of oleo chemicals and makes more than a hundred chemicals for use in over two dozen industries. v Real estate development arm of the Godrej Group. v It is a subsidiary of Godrej Industries Limited. Godrej Vikhroli Properties LLP is incorporated in 2011, a limited liability partnership between GPL and GIL to develop an integrated township project known as ‘The Trees’ consisting of residential and commercial developments, planned over approximately 34 acres of land in Vikhroli to be build in 3 phases. GPL has 60% share in the LLP while GIL’s share is 40%. 6
EXISTING STRUCTURE… GIL Why Restructuring: - 40% 56. 41% GVP LLP 60% GPL Godrej Industries Limited wants to exit from the project “The Trees”
THE RE-STRUCTURING… SPV The restructuring steps as follows: Step 1: - GIL to formed a Special Purpose Vehicle (SPV) GIL Vikhroli Real Estate Limited (GVREL) as a wholly owned subsidiary of GIL. Step 2: - GVREL will enter as partner in GVP-LLP with 40% share and simultaneously GIL will retire itself from GVL-LLP. Step 3: - GVREL will get merged with GPL. *: - New company incorporated. . Step I GIL 100% Step III 56. 41% GPL GVREL* 40% Step II 60% GVP LLP
WHY SUCH STRUCTURE… GIL formed Special Purpose Vehicle (SPV) – GIL Vikhroli Real Estate Limited and then this to be merged in GPL. There can be 2 main reasons for doing so: Transaction should be Tax Neutral for GIL: If GIL would have sold its 40% stake in GVP LLP directly to GPL, it would resulted in tax implication on GIL’s part. Particular Amount (In Crore) Total Consideration 437. 06 Cost 146. 28 LTCG @ 20% ~58. 15 Net Cash received by GIL 378. 91 Cash outflow from GPL Direct purchase of stake would have led to cash outflow of around 437. 06 crore to GPL. Only GPL will receive cash and no other shareholders. 9
GAIN TO GODREJ GROUP… v Exit for GIL from non-core business. v Remaining two phases’ profit will be booked by GPL alone. v Promoters holding in GPL will increase to 76. 86% from current level of 74. 91%. v GIL/Promoters are likely to get about INR 110 crore from selling their 1. 86% stake tax free. 10
Case Study: - Adani Group 11
ABOUT ADANI GROUP… Diversified industrial conglomerate Adani Group restructured its business in which the public listed power generation and ports firm spliced out of the flagship company Adani Enterprises Ltd (AEL) while the privately held power transmission unit be listed as a separate firm. AEL decides to restructure four major businesses PORT BUSINESS: Operated through Adani Ports and Special Economic Zone Limited (APSEZL), in which AEL was holding 74. 99% stake. POWER BUSINESS: Operated through Adani Power Limited (APL), in which AEL was holding 68. 99% stake. TRANSMISSION BUSINESS: Adani Transmission Limited (ATL), Wo. S, through which the group is operating its Transmission business. COAL BUSINESS: Adani Mining Private Limited (AMPL), a wholly owned subsidiary of AEL to undertake activities relating to development and operation of domestic coal mine. 12
PRE RE-STRUCTURING STRUCTURE OF ADANI GROUP… ADANI ENTERPRISES LIMITED Mining & Trading Oil & Gas 100% Adani Mining Private Limited 100% Adani Global FZE, Dubai Agro Product 100% Adani Gas Limited 65% Adani Welspun Exploration Adani Agrifresh Limited Port 74. 99% Adani Ports Special Economic Zone Limited 50% Adani Wilmar Limited 100% Adani Global Pte, Singapore Before Re-Structuring, equity shares of AEL, APSEZL and APL were listed on BSE & NSE. Power 68. 99% 100% Adani Power Limited 100% Adani Power Maharashtra Limited 90. 91% 9. 09% Adani Transmission India Limited Adani Transmission Limited
THE RE-STRUCTURING… Transaction I Demerger of the Port Undertaking of AEL comprising the undertaking, businesses, activities, operations, assets and liabilities pertaining to Belekeri Port and investment of AEL in APSEZL into APSEZL. Transaction II Demerger of the Power Undertaking of AEL comprising the undertaking, businesses, activities, operations, assets and liabilities pertaining to the 40 MW Bitta Solar Project and investment of AEL in APL into APL. Transaction III Demerger of the Transmission Undertaking of AEL comprising the undertaking, businesses, activities, operations, assets and liabilities relating to the Mundra- Zedra transmission line and investment of AEL in ATL into ATL to be listed on BSE Limited and National Stock Exchange of India Limited pursuant to the scheme. Transaction IV Merger of AMPL into AEL. 14
POST RE-STRUCTURING STRUCTURE OF ADANI GROUP… Adani Enterprises Limited (AEL) Mining Trading 100% Adani Transmission Limited (ATL) Agro Product 100% Adani Agrifresh Limited Adani Global Limited 50% Adani Global 100% Adani Global Pte, FZE, Dubai Singapore Gas and Oil Adani Gas Limited 65% Adani Wilmar Limited Adani Ports and Special Economic Zone Limited (APSEZL) Adani Welspun Limited Adani Power Limited (APL) v AEL, APSEZL, APL and ATL have their equity shares listed on BSE and NSE. v AEL now is engaged in Mining, Trading, Agro Product and Gas & Oil businesses. Adani Global Limited, Adani Agrifresh Limited and Adani Gas Limited are subsidiaries of AEL while Adani Global FZE & Adani Global pte are step down subsidiaries of AEL. v Adani Wilmar Limited & Adani Welspun Limited are the Joint Ventures of AEL.
WHY RE-STRUCTURING… Each of the varied businesses are distinct in terms of v potential for growth and profitability. v Nature of risk and competition, v different level of capital v Direct ownership of operational businesses v Increase the valuations v Shareholders will be having the flexibility to remain invested in one or more of the businesses 16
VALUE CREATION… Let us try to calculate gain to the shareholder Particulars Share price of AEL before demerger announcement i. e on 28. 01. 2015 Amount 557 Today’s Price i. e. on 10. 08. 2015 AEL 94 APSEZL (340* 1. 4123) 480 APL (28. 50*1. 8596) 53 ATL 38 Adjusted price of AEL 665 Gain in prices 108 (19. 38%) 17
Case Study: - Aditya Birla Nuvo 18
ABOUT ADITYA BIRLA GROUP… Aditya Birla group’s conglomerate Aditya Birla Nuvo Limited (ABNL) announced consolidation of its branded apparels businesses under its listed subsidiary - Pantaloons Fashion & Retail Limited (PFRL). Acquired in 2012 from Future group Presently, the apparels retail businesses of the Aditya Birla group are housed under three separate entities i. e. ABNL, Madura Garments Lifestyle Retail Company Limited (MGLRCL) and PFRL. ABNL has two division Madura Fashion & Lifestyle and Jaya shree textile. PFRL is among the top 3 large format fashion retailers and the largest branded womenswear retailer. MGLRCL, Wo. S of ABNL, is the largest premium branded apparel player in India. Its premium brands – Louis Philippe, Van Heusen, Allen Solly and its popular brand - Peter England, are leaders in their respective categories. 19
PRE RE-STRUCTURING STRUCTURE… Aditya Birla Group Financial Services ABNL 58. 30% Telecom 41. 70% Fashion & Lifestyle Manufacturing Agri Life Insurance Asset Management Public 100% Branded Apparels MGLRCL Rayon 72. 62% PFRL Insulators NBFC Broking 20
THE TRANSACTION… a 100% ABNL Divisions Madura F&L Divisions Demerger of two divisions Jaya Shree 72. 62% MGLRCL Madura Lifestyle Textile PFRL 21
THE TRANSACTION… Transaction Steps: Step I: - Demerger of Madura Fashion (division of ABNL) into PFRL. Step II: - Demerger of Madura Lifestyle (division of MGLRCL) into PFRL. As result of re-structuring, PFRL will issue shares to the shareholders of ABNL. The existing base of 92. 8 mn ABNL 9. 06% Aditya Birla Group Public 51. 10% Pantaloons/ABFRL = Madura F&L Pantaloons Madura Lifestyle Shares of PFRL will expand to more than 770 mn. Post Re-structuring ABNL stake will come down to 9. 06% from 72. 62% resulting into losing of control over PFRL. 22 39. 84%
WHY RE-STRUCTURING… v Consolidation of lifestyle business under one roof v Synergies of operation and cost savings in terms of size v Entire spectrum of fashion v Madura will get exposure to women wear 23
VALUE CREATION… Let us try to calculate gain to the shareholder Particulars Amount Share price of Aditya Birla Nuvo before demerger announcement i. e on 30. 04. 2015 1570 Share price of Pantaloons before demerger announcement i. e on 30. 04. 2015 114 Today’s Price i. e 17. 08. 2015 Aditya Birla Nuvo 2298 Pantaloons 232 24
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