Promoters' friendship pays off for Jai Corp

Jai Corp's small office on the eighth floor of Maker Chamber- III at Mumbai's busy business hub, Nariman Point, looks as spartan as the company's chairman, Anand Jain.

But the man, best known for his childhood friendship with Reliance Industries chief Mukesh Ambani, is now creating waves in the stock markets after his little-known company sold shares worth Rs 2,800 crore to a clutch of leading foreign investors such as Blue Ridge and Tiger.

Consider this: Jain's family (his father promoted Jai Corp in 1985) sold 12.6 per cent of its 87.7 per cent stake at Rs 1,035 a share this month.

To put this in perspective, the stock was quoted on the Bombay Stock Exchange at Rs 17 (adjusted for bonus and stock split) just a year back. Its market capitalisation has zoomed to Rs 21,633 crore from Rs 324 crore in the same period.

The return to investors through the price rise and bonus is a mindboggling 6,575 per cent in the last one year.

So what explains the stratospheric rise in the valuation of a company that was not so long ago a mid-rung player in steel, plastic processing and spinning yarn?

The answer is fairly simple: friendship pays.

Jai Corp has joined hands with Mukesh Ambani in virtually every infrastructure development project in Mumbai.

Both have combined to develop two multi-product special economic zones (SEZs) over an estimated 17,600 acres; the country's largest port at Rewas; an expressway (linking Sion with the Mumbai-Pune road at Panvel), elevated roads and even a dam that will feed the two SEZs.

The company is also bidding for the development of the proposed international airport in Mumbai.

Ambani in his personal capacity will have more than 50 per cent equity in all the projects and Jai Corp will hold 10 per cent.

Jain's company also plans to foray into power generation, distribution and transmission to the SEZs, and will float three special purpose vehicles to undertake this business. It will also build a 700 Mw gas-based power plant within the SEZ.

Sources said the inflection point for the company came when it diversified into real estate two years back.

Last year, Jain launched the country's largest real estate investment management company, Urban Infrastructure Venture Capital, which has two funds that manage $1.1 billion.

The funding plans for all these projects have already been finalised. Estimates by Enam Research show that a 10 per cent stake in the SEZs, power plants, dam, port and the trans-harbour link requires Jai Corp to invest a combined Rs 2,630 crore.

Though the low-profile Jain preferred not to talk, sources close to the developments said the promoters have pumped in Rs 1,500 crore by investing in redeemable preference shares without any option of converting them into equity. Another Rs 400 crore will be raised through debt.

The balance will come via fees from the two real estate and infrastructure funds.