Jaiprakash Associates Ltd

Company sells-off shares to take advantage of the big rally in stock market & prune debt
It seems to be the flavour of the season. A week after Reliance Industries, infrastructure company Jaiprakash Associates Ltd (JAL) followed in selling treasury stock that it had got when it merged Jaypee Cements, and other subsidiaries, with itself. Jaiprakash raised around Rs 1,190 cr from the sale of 5 cr treasury shares in bulk deals last week. This was the second such sale of treasury shares for the company, which sold 2.5 cr shares on June 18 at Rs 200 a share to raise Rs 500 cr. JAL shares closed 6.34% lower last Wednesday (when the shares were sold) to close at Rs 234.15, against a decline of 1% in the Sensex. The company sold shares at an average price of Rs 238.50 a share. JAL has got no forex exposure that can be adversely affected due to the global meltdown. Its series III foreign currency convertible bonds (FCCBs) issued in 2007 are due for conversation only in 2012.

A merger of four subsidiaries with JAL early this year resulted in the formation of around 21 cr treasury shares or 14.5% of the equity capital of the combined entity. Treasury shares are those issued to the parent company in lieu of the stake it holds in its subsidiaries. Since the parent company can’t hold its own shares, these treasury shares are being held by four trusts created for the purpose. JAL merged with itself Jaypee Hotels, Jaypee Cement, Gujarat Anjan Cement and Jaiprakash Enterprises.

The Delhi-based company, which is the flagship of Jaypee Group is an infrastructure player with operations in cement and cement production, engineering & construction, power, hospitality and real estate, went in for the share sell-off to take advantage of the big rally in the stock market and use it as an opportunity to prune debt, feel experts.

According to Amitabh Chakraborty, president (equity), Religare Capital Markets, selling treasury stocks is one of the ways to raise funds. Since equity market has rallied substantially, companies are enchasing on this opportunity.

The companies which had accumulated record amounts of debt during boomtime for expansion projects, now have little choice but to raise funds. In fact, Indian companies have raised record funds by selling shares to institutional investors this year, after Sebi relaxed pricing rules. About 26 companies so far, have raised Rs 17,800 cr by selling shares or convertible securities to institutional investors this year, according to Bloomberg data.

The move by Jaiprakash to raise funds is a bid to finance its proposed captive power plants and keep cash ready for a possible acquisitions or for setting up of cement capacity in Maharashtra and overseas, a top company executive said. “The funds raised will be used to finance our proposed 360 MW captive power plants and add more cement capacity,” said JAL executive chairman Manoj Gaur, adding that they will not go towards debt repayment. JAL has a total debt of Rs 9,500 cr and a debt-equity ratio of 1:9, as of now. The company has no plans to sell any more treasury shares in the next three months.

Experts feel that as the market improves, the company will continue to sell treasury shares in phases to fund its projects that include cement plants and expressways. The proceeds of the first round of treasury share sale was slated to finance the Formula 1 track in Greater Noida, a cement plant in Andhra Pradesh and Yamuna Expressway between Noida and Agra.

Jaiprakash Associates has also recently raised Rs 1,000 cr through an issue of five-year non-convertible debentures (NCDs) to Standard Chartered India at a coupon rate of 11.5%.