The Telegraph
Since 1st March, 1999
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FIs cautious on L&T spin-off

Mumbai, Dec. 5: Financial institutions (FIs) that hold a large slice of Larsen & Toubro’s (L&T) equity are going to be extremely circumspect when the plan to spin off the cement wing comes up for discussion.

Sources The Telegraph spoke to said the institutions which now own over 40 per cent in the diversified major are not opposed to the idea. However, they would like to go through proposals on this count with a tooth-comb. An internal committee is already looking at the issue, and a report — focusing on the broad parameters of the exercise — is expected soon.

Once the panel’s conclusions are known, institutions would take a “harmonious approach” to the stand they would adopt when the proposition is on the table.

“Though FIs are not against the proposal per se, they will not act in a hurry and will consider it carefully. If necessary, clarifications will be sought from the management. This would done to ensure maximum shareholder value from the transaction,” an official said.

The cement spin-off has generated considerable interest amid reports that the A V Birla group is not comfortable with the idea of inviting a strategic partner. At its board meeting on October 29, L&T had listed a possible investment by Commonwealth Development Corporation (CDC) in a supplementary agenda. The multilateral agency had sent the company a term-sheet, detailing ways in which it would like to invest.

L&T, with a cement capacity of over 16 million tonnes, reckons $ 70 per tonne as a fair valuation. This is touted as a conservative basis, though other deals in the sector have been clinched at an acquisition price of $ 50 per tonne. Optimists say L&T could get $ 90 per tonne. “On the higher side, they should obtain a consideration of around $ 300 million if a 25 per cent stake is offloaded to a strategic investor,” an analyst said.

Three bidders — Lafarge, Holderbank and Cemex — threw their hats in the ring when the L&T board announced its decision to spin off the cement wing in 2000. The plan was moth-balled as suitors lost steam.

Under the initial plan, L&T and the strategic ally would hold 37.5 per cent each in the demerged company; shareholders would have retained the balance. Observers say much of the resistance from the Birlas to the de-merger issue could come because hawking equity to a strategic partner would leave it with a small stake in a crucial business.

Group chairman Kumar Mangalam Birla wrote to L&T managing director A. M. Naik after the October 29 board meeting, urging him to submit full details of the proposal.

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