India Cements, the company that owns Chennai Super Kings, has decided to demerge the IPL franchise to a wholly-owned subsidiary. Currently Super Kings is a division in the company, which is headed by sidelined BCCI president N Srinivasan, who is India Cements' vice-chairman and managing director.
Converting Super Kings from a division into a 100% subsidiary will not affect who controls the franchise, as India Cements will continue to own it. This would mean that the demerger will not help shield Srinivasan from the conflict-of-interest allegations that have followed him since the inception of the IPL.
"Our Company presently owns Chennai Super Kings (CSK) - BCCI-IPL Franchise 20/20 Cricket Tournament Team," India Cements, a listed company, said in a filing with the Bombay Stock Exchange. "We propose to demerge the said CSK Division to a wholly-owned subsidiary of our Company. Accordingly, we have included this proposal for consideration of the Board of Directors of our Company at the ensuing meeting on September 26, 2014."
There are benefits attached to demergers and conglomerates routinely opt for them. Super Kings will not be the first IPL franchise to be a subsidiary of an Indian business conglomerate. Mumbai Indians and Royal Challengers Bangalore are owned by subsidiaries of Reliance Industries and UB Group respectively.
Transferring an asset to a separate legal entity, such as a subsidiary, allows owners increased flexibility in fund-raising. For instance, the Super Kings subsidiary will be able to borrow funds in its own name.
There is also increased attractiveness for potential investors. For instance, someone wanting to invest only in Super Kings would earlier have found it difficult as India Cements has multiple businesses in one entity. It will become simpler to sell a stake in Super Kings with the franchise housed in a separate subsidiary. Demergers usually also lead to better managerial focus and operational flexibility.