L&T cement demerger plan may face tough hurdles

IGF has also expressed concern over the hasty steps taken by L&T management and the stand taken by financial institutions on the demerger issue without any proper recommendation of any consultant.

Said IGF president Kirit Somaiya: “A consultant has to be appointed and a proper valuations has to be done before L&T’s cement division is demerged. Earlier, Boston Consultancy Group had valued L&T’s cement division at a price of Rs 340 per share.

As against this CDC has offered a price of Rs 160 per share which is very low.” “The IGF wants to know whether L&T has enquired with any consultant following the CDC proposal. IGF has discussed the issue with LIC and UTI management and they have assured us that no hasty step will be taken,” he said.

He said the forum disapproves Birla’s open offer of Rs 190 and even doesn’t support CDC proposal for L&T’s cement division demerger. “IGF demands proper justice for small investors. Either the Birlas should raise the price of its open offer to Rs 306 or they should come out openly to offer a reasonable price and terms for the L&T cement division,” IGF said.

Meanwhile, the Birla group has argued that just as Grasim’s open offer was stayed by Sebi pending investigation, it would be unfair to allow target company to alter business as the offer still exists, sources said.

As per the plan, Larsen & Toubro will have to give a corporate guarantee to CDC that the demerger of the company’s cement business would be completed by December 31, 2003. Failing this, L&T would have to pay penal charges of two per cent on CDC’s investment of around $60 million. CDC can redeem the optionally convertible foreign currency bonds , according to the proposal which is currently before the L&T board.

In the first stage, L&T will have to capitalise the cement subsidiary by investing Rs 170 crore and in turn would be allotted 17 crore shares at par. This entity would initially be a 100% subsidiary of L&T. The division would then be transferred to the new company at book value in the second stage. The book value would be in the range of Rs 2,000 crore.