Special Situation: Jindal Poly De-merger

I had shared this note with a few of my investor friends a few days ago –

The brief summary is as follows –

a) Jindal Poly wants to focus on its polymer business and wants to de-merge its holding/investment arm.

b) For every 4 shares of Jindal Poly (JP), you would get 1 share of Jindal Poly Inv. & finance (JPIF)

c) All investment & holding related stuff moves from Jindal Poly to Jindal Poly Inv. & Finance

The record date is July 18th. And here’s the link to the demerger details (http://www.thehindubusinessline.com/multimedia/archive/01364/Click_here_for_pdf_1364878a.pdf)

Behind the 23 page of legalese pdf, the key messages are –

a) Jindal Poly wants to move its investment of equity shares in Power business off to this investment arm (from what I read, its only investment and not debt associated – needs more readings)

b) All MFs and other investments move to this JPIF.

Both JP and JPIF will have the same shareholding structure. JP will continue to be listed, while JPIF will be listed on BSE & NSE.

Here’s the interesting bit. JPIF will have the following –

a) 43.6 cr shares of Jindal India Powertech limited

b) 17.82 cr shares of Jindal Poly Investment limited

c) 4.4L shares of Coal India

d) 11.86L shares of Consolidated Finvest

e) 187 cr worth of mutual funds

Now, with most conservative assumptions, let’s value

a) at Re. 1 per share, b) at Rs. 0 per share c) 4.4* 285 = 12.6 cr d) at Rs. 0/- and e) at 187 cr.

which would give us a total of Rs. 240 cr (approx).

Let’s apply a massive 70% discount (since it’ll be treated as a holding & inv. company) which would give us Rs. 72 cr.

After de-merger, JPIF would have 1.05 cr shares, which would give us the value of JPIF to be 69 bucks per share. The current market price of JP is Rs. 158 bucks per share.

There are a couple of options:

a) We can buy JP before record date and sell after record date and since the shareholding remains the same (no dilution) and the investment timeframe is short and the de-merger not tracked too much and shareholders would be happy to get rid of the power investment, we can expect maybe only a very mild correction (if at all)

b) We can buy JPIF after it’s listed and since institutions hold a fair bit (7%) and they may not wish to hold to a holding company, any listing/selling below 69 bucks a share should be bought quite comfortably.

Aftermath:

I had bought into a miniscule position (very tiny) at about Rs. 158/- and sold it today at Rs. 148/-. That is I created a JPIF share at about Rs. 40/- share (4 shares of Jindaly Poly and at Rs.10/- loss for 1 share of JPIF).

Since the position was tiny, the opportunity cost of this Rs.40/- getting stuck for say 6 months (before listing) will not impact my overall portfolio.

Let’s wait and see if JPIF will list above Rs.40/- or below Rs.40/-

Disclosure: I bought and sold my entire position in Jindal Poly to create JPIF shares. This post is not a buy/sell/hold recommendation of any stock mentioned on the blog. Please do your own due diligence before investing

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  1. #1 by Arihant on July 19, 2013 - 4:49 PM

    Interesting… lets see how it lists.

  2. #2 by anil1820 on July 23, 2013 - 8:25 PM

    Currently I am reading a lot on Amitabh Singhi of Surefin. In one of the interviews this is what he shared “Another investment on which I lost 60%, amounting to a portfolio loss of 1.8%, was Consolidated Finvest, a Jindal group holding company. The simple thing I had to do was study their governance history but I was more focused on how much the cash was going to be. It was an example of looking at the wrong thing.” Summary is Jindal group capital allocation history is not good and one can never be sure what they will do with their non-trade investment and resultant cash. Secondly why anybody should be interested in buying JPIF post listing unless and untill the company start paying some dividend. Else it would be of no use. If at all one wants to buy, better to buy post listing if shares declined too much….

  3. #3 by Manish Dhawan on February 12, 2014 - 11:31 AM

    I agree. Invert always invert. Juice in open offers is over thanks to a zillion sanjay bakshi pupils sniffing around similar stories to ‘Clone’.

    Money is in buying the market anomalies. its over reaction in dumping the pig. cases in point orient paper, piramal life. both 4 baggers in 6-8 months.

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