GACL sells subsidiary stake to fund takeovers

Gujarat Ambuja Cements had recently transferred its 93 per cent stake in Ambuja Cement Eastern Limited to Ambuja India, comprising of 16,60,57,827 equity shares of ACEL at a price of Rs 25 per share amounting to Rs 415 crore. With this transfer, Ambuja India has a 1.5 million tonne cement plant at Raipur, GACL said and added, it would incur a capital expenditure (capex) of Rs 150 crore for undertaking capacity enhancement of the plant to two million tonnes as also for setting up a cement grinding unit in West Bengal.

The need to sell its stake in its subsidiary stemmed from the fact that GACL, which acquired the Tatas’ 7.2 per cent stake in ACC through its subsidiary for Rs 455 crore, is faced with an obligation of shelling out an identical amount for the remaining 7.2 Tata stake in ACC within this calendar year. GACL also acquired DLF Cement last year.

"As per the terms of the deal, the Tatas can exercise a put option for the stake-sale within the calendar year. The cash infusion will come in handy as and when the Tatas decide to exercise the put option," said an analyst.

Besides, the company’s financial burden is set to go for a six in case the market regulator Sebi asks the company to make an open offer for another 20 per cent stake in ACC. GACL has been caught in the midst of a controversy following its induction as a co-promoter in ACC as the deal has triggered off a debate on whether there has been a "change in control".

The private placement of equity in ACI will come as a breather for GACL, which may find it difficult to go ahead with its $ 200-million overseas float owing to adverse market conditions. The GACL scrip has shed around 40 per cent at the Bombay Stock Exchange over the last three months with the stock price nosediving from around Rs 400 in late December to just around Rs 250. On Wednesday, the GACL stock closed at Rs 246 from yesterday’s closing of Rs 245.

No final decision has, however, been taken on the transfer of stake in its newest subsidiary, DLF Cements. The 42 per cent stake in the Delhi-based cement maker, post-open offer, is held by Gujarat Ambuja Cements.

FIs are keen that GACL should make an open offer for other ACC shareholders. A section of the ACC top brass does not seem totally convinced with the argument that there has been no change in management control. "Even though GACL owns just 7.2 per cent stake in ACC, its nominees are calling the shots at the board level. With an investment of Rs 455 crore, which can at best buy a million tonne of cement capacity, GACL is today in control of over 12 million tonnes of additional capacity. It would send out a wrong signal if Sebi does not ask GACL to make an open offer when it acquires the remaining stake from the Tata group," said an ACC board member.

Financial institutions — the largest shareholder in ACC with a 22 per cent stake — have also questioned the appointment of Sekhsaria as deputy chairman of ACC. Sebi is also understood to be "examining" the deal to find out whether it has led to a change in management control and thus triggers the takeover code.