The $15-billion (Rs 92,745-crore) OP Jindal group is exploring options of creating a family foundation fund, which will ensure continuity for next-generation members and protect family interests and shareholdings in various companies housed in the steel-to-power conglomerate.
The foundation, the contours of which are still being worked out, will have a corpus to which all the four Jindal brothers — Prithviraj, Sajjan, Ratan and Naveen — will contribute equally, and could initially be in the range of Rs 1,000 to Rs 1,500 crore. A part of the corpus may be used to lend to troubled companies within the group, people familiar with the plans said.
While such a foundation is not new in a family-run Indian business house, it is significant for the Jindal family, as a family charter, drawn up by late patriarch OP Jindal, is in existence. It ensures that the four brothers have independent businesses under the overall family umbrella, while each has a minority equity stake in the others’ companies.
“While the charter binds the previous generation, the foundation will take care of the next generation and ensure that their interests are not hampered by future events,” said one person who asked not to be named. Other objectives of the foundation would include consolidation of shareholdings in various group companies, providing capital to start new businesses for younger family members and also contributing growth capital to existing family businesses.
Each family’s holding will be in the form of mezzanine equity — preference shares but with voting rights, where the rate of returns will be lower than market rates. About half of the corpus of the foundation will be used to finance business plans within the family.
Members of the OP Jindal family did not comment for this story.
The group, founded by late parliamentarian OP Jindal, has many companies of which the five main are Jindal Saw (managed by Prithviraj Jindal), JSW
Steel, JSW Energy (Sajjan Jindal), Jindal Stainless (Ratan Jindal) and Jindal Steel & Power (Naveen Jindal).
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Among these, JSW Steel and JSW Energy currently have the highest combined market capitalisation of about Rs 44,000 crore (as on December 8) while Jindal Stainless has the least of Rs 666 crore.
Under the old charter, each brother had a shareholding in others’ companies – for example, Sajjan and Naveen Jindal separately hold 0.01% stake each in Ratan Jindal’s Jindal Stainless. The children also have shareholding in each of the group companies – Parth Jindal (son of Sajjan Jindal) and
Sminu Jindal (daughter of Prithviraj Jindal) own 0.01% and 0.02% in Jindal Stainless respectively.
At present, members of existing promoter group can exercise their right on shares of other group companies, but this mechanism may not be there for the children. “The foundation is essentially a safety net,” said Sunil Shah, founder, Evergreen Family Advisors. “OP Jindal was a man of great vision and what he put down in the charter was much ahead of its time,” said Shah, who has been involved in preparing family constitutions for many large Indian business groups. “This foundation will safeguard in case any member of the fourth generation decides to start on his or her own.”
The management of the foundation will be done by a professional company, typically a trusteeship firm. “There is an increasing trend of forming trusteeship companies,” said Rishabh Shroff, principal associate at Amarchand Mangaldas who is involved in drafting family agreements. “In such agreements, there can be provisions that can take care of the investments of the foundation and also to ensure that interests of members of the family are protected.”
The main objective is to allow the new generation members to have the freedom to pursue their interests and also aid troubled companies. Talking about the bailout plan, professor Kavil Ramachandran, Thomas Schmidheiny chair professor of family business and wealth management at the Indian School of Business, said it could be novel in the Indian context. “I expect it to work like a private equity fund with very clear governance principles and strong professional approach which will be required to avoid pressures from family units. This will be another way to address the functions of a family office.”