BUSINESS RE-STRUCTURING…BUSINESS RE-STRUCTURING…

- CA HARESH SHAH

INTERNAL RE-STRUCTURINGINTERNAL RE-STRUCTURING

Means:

Examine the present structure of the group

businesses

Legal- Company, WoS, LLP

Financial:- leveraging, flexibility of

financing, expansion, Promotor group

shareholding and Family Succession

Tax optimization including transfer

pricing regulations

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INTERNAL RE-STRUCTURINGINTERNAL RE-STRUCTURING

Future plan:- IPO, JV, alliance and exit

Commercial:- Synergies, focused

management , risk and return profile, cost

optimization and unlocking value

Return to shareholders:-Dividend and

Buy Back

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OPTIONS AVAILABLE…OPTIONS AVAILABLE…

4Apart from above, there are various other options available in restructuring.

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Case Study:- Godrej GroupCase Study:- Godrej Group

ABOUT GODREJ GROUP…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).

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%.

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GIL GPL

India's leading manufacturer of oleo chemicals and makes more than a hundred chemicals for use in over two dozen industries.

Real estate development arm of the Godrej Group.

It is a subsidiary of Godrej Industries Limited.

EXISTING STRUCTURE… EXISTING STRUCTURE…

Why Restructuring:-

Godrej Industries Limited wants to exit from the project “The Trees”

GIL

GVP LLP

GPL

40%

60%

56.41%

THE RE-STRUCTURING… THE RE-STRUCTURING…

GVREL*

*:- New company incorporated..

100%

SPVSPVThe 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.

GIL

GPL

56.41%

GVP LLP

40%

60%

Step I

Step II

Step III

WHY SUCH STRUCTURE…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.

Cash outflow from GPLDirect 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.

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Particular Amount (In Crore)

Total Consideration 437.06

Cost 146.28

LTCG @ 20% ~58.15

Net Cash received by GIL 378.91

GAIN TO GODREJ GROUP…GAIN TO GODREJ GROUP…

Exit for GIL from non-core business.

Remaining two phases’ profit will be booked by GPL alone.

Promoters holding in GPL will increase to 76.86% from current level of 74.91%.

GIL/Promoters are likely to get about INR 110 crore from selling their 1.86% stake tax free .

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Case Study:- Adani GroupCase Study:- Adani Group

ABOUT ADANI GROUP…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), WoS, 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.

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100% 100% 100%

50%

74.99% 68.99%

100%

90.91%

65%100%

100%

100%

9.09%

100%

PRE RE-STRUCTURING STRUCTURE OF ADANI GROUP…PRE RE-STRUCTURING STRUCTURE OF ADANI GROUP…

Before Re-Structuring, equity shares of AEL, APSEZL and APL were listed on BSE & NSE.

THE RE-STRUCTURING…THE RE-STRUCTURING…Transaction IDemerger 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 IIDemerger of the Power Undertaking of AEL comprising the undertaking, businesses, activities, operations, assets and liabilities pertaining to the 40MW Bitta Solar Project and investment of AEL in APL into APL.

Transaction IIIDemerger 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. ATL to be listed on BSE Limited and National Stock Exchange of India Limited pursuant to the scheme.

Transaction IVMerger of AMPL into AEL.

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POST RE-STRUCTURING STRUCTURE OF ADANI GROUP…POST RE-STRUCTURING STRUCTURE OF ADANI GROUP…

100%

100% 100%

100%

50%

100%

65%

AEL, APSEZL, APL and ATL have their equity shares listed on BSE and NSE. 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.

Adani Wilmar Limited & Adani Welspun Limited are the Joint Ventures of AEL.

WHY RE-STRUCTURING…WHY RE-STRUCTURING…Each of the varied businesses are distinct in terms of

potential for growth and profitability.

Nature of risk and competition,

different level of capital

Direct ownership of operational businesses

Increase the valuations

Shareholders will be having the flexibility to remain invested in one or more of the businesses

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VALUE CREATION…VALUE CREATION…Let us try to calculate gain to the shareholder

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Particulars Amount

Share price of AEL before demerger announcement i.e on 28.01.2015

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%)

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Case Study:- Aditya Birla NuvoCase Study:- Aditya Birla Nuvo

ABOUT ADITYA BIRLA GROUP…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, WoS 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.

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PRE RE-STRUCTURING STRUCTURE…PRE RE-STRUCTURING STRUCTURE…

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Branded Apparels

100%

72.62%

Aditya Birla

GroupPublic

58.30% 41.70%

THE TRANSACTION…THE TRANSACTION…

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aABNLABNL

Madura F&L

Jaya Shree

MGLRCL

Madura Lifestyle

Textile

PFRL

Demerger of two divisions

100%

72.62%

Divisions Divisions

THE TRANSACTION…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 92.8mn

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.

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Aditya Birla Group

ABNL Public

Pantaloons/ABFRL

=Madura F&LPantaloons

Madura Lifestyle

9.06% 51.10% 39.84%

WHY RE-STRUCTURING…WHY RE-STRUCTURING…

Consolidation of lifestyle business under one roof

Synergies of operation and cost savings in terms of size

Entire spectrum of fashion

Madura will get exposure to women wear

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VALUE CREATION…VALUE CREATION…Let us try to calculate gain to the shareholder

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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

THANK YOU…THANK YOU…

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