Sure, the brothers deny it, but even an informal carve-up of their steel empire will help them consolidate.

By Rajeev Dubey

They could be steeling themselves, and their business empires, for a split. Like many other business families, the four scions of Om Prakash Jindal, the 67-year-old Chairman of the Jindal Group--Prithvi Raj, 46, Ratan, 37, Sajjan, 35, and Naveen, 29--have, in recent times, been taking strategic and operational decisions that will allow them to chart out their futures independently. And, like every other business family before them, the Jindals too rule out a formal division of their Rs 2,600-crore steel empire in the near future.

Declares Sajjan Jindal, the Managing Director of the Rs 816.41-crore Jindal Iron & Steel Co. (JISCO): "We have no intention of spinning off as individual groups." Echoes Ratan Jindal, the Managing Director of the Rs 1,065.12-crore Jindal Strips: "There is no plan to divide the group." Predictable. After all, the Jindals will be wary about severing their ties with each other at a time when the economy is drifting into a recession, demand is falling, and there is safety only in size.

Moreover, their father, who retired in 1991 to pursue a political career, may be opposed to the idea of carving up a group that is only 28 years old. Despite these formal denials, however, the face of the group is clearly being altered to create a distinct identity for each of the four siblings. In sum:

• The Jindal brothers have decided to exit from all their unrelated businesses to focus on their core.

• The Jindal brothers have decided that there will no interference by the others in the companies managed by each of them.

• The Jindal brothers have decided that their projects will not be co-financed by all of them in future.

Evidently, these are the three prongs of things to come. Concludes a senior manager in a financial institution: "This is a precursor to a split." However, the Jindals say in unison that it is meant only to rationalise their operations. Explains Arvind Parakh, 41, Group Vice-President (Corporate Finance): "The restructuring was meant to leverage our assets for future growth and synergy." Adds Sajjan: "The exercise was undertaken keeping in mind the expansion of Jindal Strips into areas that were not part of its core business." Chips in Ratan: "The restructuring is aimed at giving the best possible returns to the shareholder."

Apparently, it was only because of this logic that the group's flagship, Jindal Strips, recently sold its 1.50-lakh tonnes per annum (tpa) cold-rolling unit at Vasind (Mumbai) to JISCO for Rs 75 crore. Then, it also hived off its Raigarh (Madhya Pradesh)-based 70-mw power plant and a 5-lakh tpa sponge iron unit into a new company, Jindal Steel & Power. This, according to the Jindals, was a decision forced by its investors, who had expressed concern about the entry of Jindal Strips into unrelated businesses.

This argument, however, falls a trifle flat since the Jindals sang a different tune when the diversifications took place in the late 1980s. At that stage, they claimed that sponge iron was a critical raw material for steel-making while captive power was crucial to run a steel unit efficiently. Then, the Jindals were following in the footsteps of the Rs 3,300-crore Essar Group, which too was pursuing a backward-integrated strategy. That is, setting up units to mine iron ore, make iron pellets, produce power, manufacture sponge-iron, and produce steel and roll it into value-added products.

Therefore, the aim of this restructuring by the Jindals may well have been to enable each brother to manage a specific business. Thus:

• Prithvi Raj now has control of the Rs 497.27-crore Saw Pipes, and the international operations of the group.

• Sajjan Jindal now has control of JISCO and Jindal Vijayanagar Steel Ltd (JVSL).

• Ratan Jindal now has control of Jindal Strips.

• And Naveen Jindal now has control of Jindal Steel & Power, and the joint venture with Malaysia's Genting to set up a 500-mw power plant at Raigarh.

Indeed, this informal division even rules out the necessity of a formal split. And the changing times are highlighted by the fact that the Rs 4,900-crore 15.70-lakh tpa steel unit of JVSL is, probably, the last project in which all the other companies in the group will part-finance the promoters' equity contribution. Warns Ratan Jindal: "Each company has to stand on its feet, and should be responsible for its own growth. If there are any expansion plans tomorrow, all our companies should not be forced to put in money."

Obviously, this means that the Jindal brothers will pursue their expansion and diversification projects in future only solo. Significantly, this will reduce the maze-like cross-holdings between the companies in the group. For instance, the Sajjan Jindal-managed JISCO's 98.76 per cent-owned subsidiary, the Rs 23.36-crore Sun Investments, owns a 4.42 per cent stake in the Ratan Jindal-controlled Jindal Strips. Which, in turn, owns a 34.94 per cent stake in the Prithvi Raj-managed Saw Pipes, and a 10.60 per cent stake in JISCO.

Indirectly, through a 100 per cent-owned subsidiary, the Rs 1.42-crore Jindal Holdings, Jindal Strips owns a 4.68-per cent stake in JVSL, and 2.23 per cent in Saw Pipes. Another 100 per cent-owned subsidiary of Jindal Strips, the Rs 1.30-crore Brahmaputra Capital, owns a 1.36-per cent stake in JVSL. And Saw Pipes owns a 2.77-per cent stake in Jindal Strips, and less than 1 per cent in JVSL.

Now, the unravelling of such a maze is well nigh impossible since it has tax-implications. So, the Jindals are toying with the idea of a Birla-like formula to untangle their cross-holdings. Agrees Ratan Jindal: "So far, we haven't really thought about dividing the holdings. But, if required, the Birla formula could be of use to us." It may be recalled that the Birla family, during its formal split in 1986, decided that, instead of costly share-swaps, each faction would reduce its stake in the other's companies by renouncing its entitlements at the time of rights issues.

Interestingly, the process of trying to reduce the cross-holdings has started in the Jindal empire. For instance, according to Jindal Strips' 1996-97 annual report, its subsidiary, Jindal Holdings, acquired substantial stakes, at face value, in a number of closely-held investment companies. Thus, Jindal Holdings purchased 7.10 lakh shares of Vrindavan Services, 16 lakh shares of Goswami Credit, 25 lakh shares of Renuka Financial Services, 14 lakh shares of Manjula Finance, and 17.50 lakh shares of Everplus Securities. However, Parakh says that there was "nothing unique about the purchases in 1996-97."

But then, there's nothing unique about a family split either. In fact, the division of the group between the four brothers will enable each of them to consolidate their core businesses. Don't forget, to accommodate all the Jindals' plans, the companies in the group all diversified into unrelated areas in the 1990s. To reverse this, the Brothers Jindal may well have to focus on different paths tomorrow.

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