A BCCL insider has disclosed that BCCL promoters are planning to restructure shareholding in flagship company BCCL. As part of the restructuring, they plan to move stake held in privately-held companies to liability partnerships.
The move is significant since the LLP structure is being used for tax efficiencies as they don't have to pay dividend distribution tax if they decide to redistribute their earnings as dividends among partners.
Moreover, minimum alternate tax (MAT) on assets too does not apply, though the revised direct tax code (DTC) has corrected this concern. Finally, LLP helps reduce incidence of wealth tax in case of wealth distribution is undertaken.
I cannot comment on the veracity of claim but there are two aspects to it. First that IPO of BCCL is strongly on promoters agenda now. Secondly this restructuring can have negative impact on privately held holding companies since the BCCL shares will move from them company to newly formed LLPs. I hope that we have receive more news on this. I solicit any news from the investors if they have any.
Disclaimer: I have interest in Bharat Nidhi and Camac Comm.
Satyakam Mishra
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We are grateful to Mr. Satyakam Mishra foir this very important input
Ashwani Kumar Aggarwal
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Tandav has left a new comment on your post "Bennett , Coleman And Company - Important Update F...":
Have heard similar notes, except that LLP was on the agenda till the Budget, the same is now under reconsideration.
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Tanya has left a new comment on your post "Bennett , Coleman And Company - Important Update F...":
If the shares are transferred what will be left of the holding companies? Will they continue to command such valuation. Are there any examples where promoters have transferred their stake to privately held companies ?
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Limited Liability Partnership Is The New Buzzword In The Corporate World
Limited Liability Partnership, or LLP, is the new buzzword in the corporate world. Or so it seems.Since the registration of the first LLP on April 2, 2009, the count of LLPs in India has touched 2,457. India Inc certainly seems to relish the idea of having a business model that provides the benefits of limited liability, separate juridical presence and continued existence while simultaneously affording the flexibility of partnerships.
Mukesh Ambani has already shifted a significant chunk of his 142,000 crore equity holdings in RIL to limited liability partnerships (LLPs), a new ownership structure. If my memory is correct Ambani has moved 34.17% stake held in 32 privately-held companies to 61 companies which include 27 limited liability partnerships (LLPs).. According to the data available on the stock exchange websites, Ambani held 44.7% stake via 41 privately held companies as of March 31, 2010. Some of the holding companies held as high as 9.6% stake while others held just few hundred shares. And, at the end of June 30, 2010 he held the same stake under 71 privately-held companies.
As part of the restructuring,
Godrej Industries has earlier sougt shareholder approval to form a special purpose vehicle to implement a real estate project along with its subsidiary Godrej Properties. Godrej Ind is the listed holding company of the Godrej group, with subsidiaries in varied businesses such as foods, consumer products, chemicals and real estate projects.
Godrej & Boyce Manufacturing Company is a privately-owned company of the group (which runs the group’s famous furniture and locks business) and is also the main shareholder of Godrej Industries. Godrej & Boyce has leased out land to Godrej Industries to house its current facilities. Of this, Godrej Industries plans to develop 36.5 acres of land (14.6 hectares) along with Godrej Properties. The three companies have signed a memorandum of understanding and will form limited liability partnerships (LLP). These LLPs will enter into lease agreements with Godrej & Boyce to develop the land. Godrej Industries will invest only Rs 1 crore for this project.
The LLPs will be set up for real estate projects. Godrej Industries will get a 40% share of the profits of the LLPs while Godrej Properties will get the rest. If the LLPs incur a loss, Godrej Properties will bear the entire burden. Godrej Properties will raise the funds required for the LLPs to implement the project. That would explain the higher share of profits, as it will fund the project as well bear all the risk.
This may well be the first instance of a large listed corporate using the LLP route to undertake a business activity. LLPs are internationally well accepted but have only recently become part of the corporate landscape in India. The main attractiveness of this structure is that, as the name indicates, limits the liability of the partners to their investment in the LLP and not beyond. It is also said to be easier to set up and operate with relaxed reporting structures unlike the traditional incorporation laws governing companies under The Companies Act, 1956.
LLP will have more flexibility as compared to a company and have lesser compliance requirements as compared to a company.
I am not sure of the status of Ambani’s holding in Farm Enterprise which is hold 2.8% equity of RIL. As per 31st December, 2010 filing with NSE, it continues to hold that stake. Farm Enterprise commands a value of 550-600 in off market curretly. I fear if the stake of Farm Enterpriseis also transferred , it will remain but a shell company.
All of us are aware that Indian promoter families control companies through myriad investment companies. So, it makes sense for them to make the shareholding more “tax efficient” by replacing investment entities by LLPs.
I don’t know how will the stock price react such conversion.but certianly this is making me nervous and jittery.
Satyakam Mishra
8 comments:
Limited Liability Partnership Is The New Buzzword In The Corporate World
Limited Liability Partnership, or LLP, is the new buzzword in the corporate world. Or so it seems.Since the registration of the first LLP on April 2, 2009, the count of LLPs in India has touched 2,457. India Inc certainly seems to relish the idea of having a business model that provides the benefits of limited liability, separate juridical presence and continued existence while simultaneously affording the flexibility of partnerships.
Mukesh Ambani has already shifted a significant chunk of his 142,000 crore equity holdings in RIL to limited liability partnerships (LLPs), a new ownership structure. If my memory is correct Ambani has moved 34.17% stake held in 32 privately-held companies to 61 companies which include 27 limited liability partnerships (LLPs).. According to the data available on the stock exchange websites, Ambani held 44.7% stake via 41 privately held companies as of March 31, 2010. Some of the holding companies held as high as 9.6% stake while others held just few hundred shares. And, at the end of June 30, 2010 he held the same stake under 71 privately-held companies.
As part of the restructuring,
Godrej Industries has earlier sougt shareholder approval to form a special purpose vehicle to implement a real estate project along with its subsidiary Godrej Properties. Godrej Ind is the listed holding company of the Godrej group, with subsidiaries in varied businesses such as foods, consumer products, chemicals and real estate projects.
Godrej & Boyce Manufacturing Company is a privately-owned company of the group (which runs the group’s famous furniture and locks business) and is also the main shareholder of Godrej Industries. Godrej & Boyce has leased out land to Godrej Industries to house its current facilities. Of this, Godrej Industries plans to develop 36.5 acres of land (14.6 hectares) along with Godrej Properties. The three companies have signed a memorandum of understanding and will form limited liability partnerships (LLP). These LLPs will enter into lease agreements with Godrej & Boyce to develop the land. Godrej Industries will invest only Rs 1 crore for this project.
The LLPs will be set up for real estate projects. Godrej Industries will get a 40% share of the profits of the LLPs while Godrej Properties will get the rest. If the LLPs incur a loss, Godrej Properties will bear the entire burden. Godrej Properties will raise the funds required for the LLPs to implement the project. That would explain the higher share of profits, as it will fund the project as well bear all the risk.
This may well be the first instance of a large listed corporate using the LLP route to undertake a business activity. LLPs are internationally well accepted but have only recently become part of the corporate landscape in India. The main attractiveness of this structure is that, as the name indicates, limits the liability of the partners to their investment in the LLP and not beyond. It is also said to be easier to set up and operate with relaxed reporting structures unlike the traditional incorporation laws governing companies under The Companies Act, 1956.
LLP will have more flexibility as compared to a company and have lesser compliance requirements as compared to a company.
I am not sure of the status of Ambani’s holding in Farm Enterprise which is hold 2.8% equity of RIL. As per 31st December, 2010 filing with NSE, it continues to hold that stake. Farm Enterprise commands a value of 550-600 in off market curretly. I fear if the stake of Farm Enterpriseis also transferred , it will remain but a shell company.
All of us are aware that Indian promoter families control companies through myriad investment companies. So, it makes sense for them to make the shareholding more “tax efficient” by replacing investment entities by LLPs.
I don’t know how will the stock price react such conversion.but certianly this is making me nervous and jittery.
As per the present laws , to the best of our knowledge , shares which are held by a partnership firm are not registered by the Company in the name of the partnership firm but in the name / names of partner ( s ).
Such registrations may not be in the best interests of common non - promoter investors.
Does that mean that if BNL, Camac, PNB Fin are converted into LLP, then the shares held by these companies in various investments will be held in the names of the Partners (thereby meaning existing shareholders). Or the minority shareholding will go into another entity like a trust etc....what is the process....i guess taking a private listed company to LLP would be easy as the no. of shareholders would be limited largely to the statutory minimum requirement. However, i am not sure how do you take a publicly listed company with dispersed shareholding into a LLP. It would be great if someone could throw some light on that.
BNL, Camac, PNB Fin are not publicly listed company? I dont know if this is legally possible.
Promoters can play any game. Havent all big promoters done that. Moreover even publicly listed companies have transferred asset without fair valuation. Let us hope for best
From Satyakam Mishra note here.
Times Innovative Media Limited, the Out of Home media subsidiary of Entertainment Network India, a BCCL got investment from Goldman Sachs and Lehman Brothers India Holdings for an aggregate consideration of Rs. 200 crores.
The entire equity stake in Times Innovative Media Limited to was again sold to Bennett, Coleman & Company Limited for a cash consideration of Rs 45 crore. Thus the company previously valued at 1200 cr was sold back to promoters at mere 45 cr. ENIL owned 83.44 per cent of Times Innovative Media, which values the company at Rs 540 million (Rs 54 crore).
We , non promoter shareholders , have to be alert and protect our rights.
Look at what the promoters have done in Binani Metals limited.
Calcutta Stock Exchange did not grant any relief to the common investors.
Let us unite.
Re : Mr. Rajan Shah 's Comment
PNB Finance , Bharat Nidhi are publicly held and listed in Regional Stock Exchanges like Calcutta Stock Exchange and Delhi Stock Exchange .
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