The directors’ sub-committee of Larsen & Toubro (L&T), which was appointed to look into the cement division demerger issue and the subsequent investment by Commonwealth Development Corporation (CDC), has asked L&T to review certain aspects of the demerger proposal. The sub-committee, headed by independent director SS Marathe, has recommended that the company should obtain an independent investment banker’s opinion on the “reasonableness” of the CDC proposal.It has also asked the L&T management to look into quite a few of the conditions that might result in interference in day-to-day affairs of the cement company by the CDC. The proposal by CDC is believed to have certain tough riders attached to it. No senior management can be appointed in L&T Cement without the consent of CDC as also the issuance of debentures and the declaration of dividend.The proposed capital structure of the new company should also be re-examined in more detail, according to the report. L&T would initially have to capitalise the cement subsidiary by investing Rs 170 crore and in turn would be allotted 17 crore shares at par. Subsequently, L&T’s stake in the new entity would come down through dilutions in favour of existing shareholders of L&T, the shareholders of Narmada Cement (which would be merged with the new cement company) and also CDC, if it decides to convert.L&T would also have to ensure that the separation of the cement division as proposed should not adversely affect the operations of the other division.The subcommittee has also asked the L&T management to renegotiate its investment in the cement company to the minimum.As per the CDC proposal, L&T would have to put in around Rs 360-370 crore in the cement company. Besides the capitalisation of the subsidiary, L&T would have to pump in $40 million which was initially slated to be made by JP Morgan who later withdrew. While L&T was unwilling to comment on the specifics of the proposal, sources close to the company point out that the valuation and the riders take into consideration the nature of the cement business which was based on certain consumption and growth assumptions.
